The Co-operative Group is set to lose one of its directors on the Co-op Bank board as the bank launched its £400 million emergency cash call, reducing its stake in the troubled lender.
In a fresh blow for the Co-op Bank, which earlier this year reported a £1.44 billion trading loss for 2013, its chairman Richard Pym, announced he was stepping down less than a year after his appointment.
The capital raising will see the Co-op Group’s stake diluted from the current 30 per cent to below the 25 per cent level, under which it is entitled to only one director. It currently sends two directors to bank board meetings.
The financial problems of the Co-op Group, whose governance was lambasted as “dysfunctional” this week by former City minister Lord Myners, mean it is having to pay for some of the discounted new shares in the bank that it is entitled to buy through selling others, known as “tail-swallowing”.
Four major investors, including hedge funds Perry Capital and Silver Point, accounting for 31 per cent of the shares, have committed to taking up their allocations of new stock. The bank revealed it needed to raise the money in March, blaming the cost of payment protection insurance mis-selling and the need for more provisioning.
Chief executive Niall Booker said it would ensure the bank could return to health. “The business plan is being implemented and there have been some encouraging early signs,” he said.
“We have started to simplify the business, reduce costs and de-risk the non-core assets, while remaining committed to the values and ethics that continue to set us apart.” But his fellow directors will have to find a chairman who can command the confidence of investors and the City watchdog.
Pym is believed to feel that the job of turning around the bank is largely complete. Sources close to the bank indicated he has been offered a new role “in public service” but not in the public sector. He is also the chairman of UK Asset Resolution, the taxpayer-backed bad bank.
The fall in the Co-op Group’s stake is not expected to affect the bank’s right to use the Co-operative name. The group and bank retain an association agreement, and the group could only take back the title through buying it out.
However, business secretary Vince Cable could in theory remove the right to use Co-operative now the bank is now longer co-operatively owned.