Co-op puts its Bank up for sale

The Co-op has put up its Bank for sale four years after it came close to dragging down its entire empire.

Despite slashing its cost base by more than 20% since 2014, the Bank said flatlining interest rates and higher-than-expected transformation costs had put a spoke in its plans for organic growth.

The Bank said the sale was always a potential outcome of the Co-op’s turnaround plan but claimed its “customer-led ethical position” and a four million-strong customer base made it a “strong franchise with significant potential”.

The Co-op’s loss-making bank division almost collapsed in 2013 after a black hole of more than £1bn was found in its finances and it was rescued by US hedge funds.

In today’s statement, the Bank said it had made “considerable progress” since then but admitted it faced a “significant” loss for the year ending December 2016, albeit lower than the £610m it lost in 2015.

The Bank is 20% owned by the Co-operative Group, which welcomed the planned sell-off and said it would work with other investors to find a good deal.

The news comes just days after group CEO Richard Pennycook announced he was stepping down to be replaced by food chief executive Steve Murrells.

Pennycook agreed he would remain an advisor to the group in a £20,000-a-month role that would primarily focus on its relations with the Bank, which provoked immediate speculation over a sell-off.

The Bank has been at the heart of a series of disasters that have rocked the group in the recent past.

It merged with the Britannia building society in 2009, a deal later blamed for its near collapse.

Things got even worse in 2013 when the Bank revealed a £1.5bn black hole in its accounts and had to be bailed out.

Chairman Paul Flowers was also at the centre of an expenses scandal before revelations about drug taking.

In January 2016, the Bank of England banned two former Co-operative Bank executives - former chief executive Barry Tootell and former managing director Keith Alderson - from holding senior banking positions.

“As a minority investor in The Co-operative Bank, the Co-op Group is supportive of the plan to find the Bank a new home,” said a spokeswoman. “We will continue to work with the Bank and other investors through the process. We are focused on finding the best outcome for our members, two million of whom are Bank customers, as well as the members of our shared pension scheme, which is well funded and supported by the group. Our goal is to ensure the continued provision of the type of Co-operative banking products our members want.”

Bank CEO Liam Coleman said: “Since 2013, we have successfully addressed significant legacy issues, reduced the cost base and rebuilt our franchise and customer proposition. The Co-operative Bank delivers an attractive banking proposition that is differentiated by our values and ethics and is highly valued by our four million customers.

“Customers value The Co-operative Bank and our ethical brand is a point of difference that sets us apart in the market.

“While our plan has been impacted by lower-for-longer interest rates, the costs associated with the sheer scale of the transformation and the legacy issues we faced in 2013, there is considerable potential to build the Bank’s retail franchise further using the strength of the brand - its reputation for strong customer service and distinctive ethical position.”