Coventry’s £780m Co-op Bank takeover deal approved by regulators
Manchester-based Co-operative Bank will revert to mutual status once more after confirmation today (November 28) of its £780m takeover by Coventry Building Society.
The two organisations issued a joint statement to the stock exchange confirming regulatory approval by the FCA (Financial Conduct Authority) and the PRA (Prudential Regulation Authority).
Details of the acquisition were originally announced on May 24, when Coventry Building Society announced the deal with the aim of creating a new powerhouse in the UK’s high street banking market.
The acquisition is expected to complete on January 1, 2025.
The cash consideration necessary to satisfy the acquisition in full will be funded from the society’s existing cash resources.
It will not require any immediate changes to the capital structure of the bank or the combined group as a whole.
The Bank of England has confirmed that it intends to exercise its discretion to treat the outstanding externally held eligible liabilities and Tier 2 instruments issued by the bank as eligible to meet the consolidated MREL requirements applicable to the combined group until May 31, 2027.
MREL is the minimum amount of equity and subordinated debt a firm must maintain to support an effective resolution. This is separate to the capital requirements set by the PRA.
It ensures that investors and shareholders – and not the taxpayer – absorb losses when a firm fails.
Post completion, the society and the bank intend to simplify and align their capital structures over time.
At completion, the bank will become a subsidiary of the society and each entity will retain their respective banking licences, and so customers and members of each organisation will continue to have the same Financial Services Compensation Scheme protection.
The combined group will be led by the society’s David Thorburn as chairman, Stephen Hughes as chief executive and Lee Raybould as chief financial officer.
The acquisition will create a group with a balance sheet of £89bn, around five million clients, more than 110 branches and a mortgage portfolio of around £70bn.
Earlier this week the Co-op Bank, founded 152 years ago, unveiled third quarter trading progress, which it said has been robust with a significant surplus to all capital and liquidity requirements.
It reported strong wholesale market activity with a benchmark £500m three-year covered bond issued and £200m MREL-senior capital refinanced.
The board of The Co-operative Bank Holdings approved an interim dividend of 0.996774p per class A ordinary share for the year ended December 31, 2024, to be paid on November 28, 2024, returning £90m to shareholders.
Bank chief executive, Nick Slape, said: “The bank is in a strong position, maintaining a resilient, low risk balance sheet and sustained credit quality.”
The takeover will draw a line under the bank’s recent chequered history which has seen it narrowly avoid collapse on two occasions.
In 2013, a bid to acquire the branch network which became TSB collapsed when the Co-op Bank itself was mired in a crisis that resulted in its £1.5bn rescue by American hedge funds and the departure of its chairman, Paul Flowers, following lurid tabloid revelations regarding his private life.
Then, in 2017, two more investors, Bain Capital Credit and JC Flowers, took a 10% stake in the company in a subsequent bailout.
In 2020 the prospect of a sale to Cerberus Capital Management came to nought, and three years ago the bank made a merger approach to Spanish-owned TSB, but nothing transpired.
