Co-op Bank’s ethical investors fret over another £400m hole

Troubled bank says capital position is weaker than initially thought

The stricken Co-op Bank has abandoned plans to float this year as it admitted it needs a further £400m just three months after raising £1.5bn to fill the hole in its accounts.

Hedge fund investors and the wider Co-operative Group, who bailed it out last time, must now decide whether they want to throw further cash at the loss-making bank.

Chief executive Niall Booker, who joined last June, said the Co-op had uncovered a further £400m of mis-selling PPI and interest rate-hedging products to customers, as well as technical breaches of the Consumer Credit Act and failure to manage properly those struggling to make their mortgage repayments. It now expects to have lost £1.2bn to £1.3bn last year.

Co-op Bank will turn to its shareholders – now largely consisting of the hedge funds and institutions which agreed to swap their bonds for equity last year – for the extra  £400m.

If the Co-op Group decides it does not want to add to the £462m it has already given or pledged to the bank as part of the original bailout, its 30 per cent stake will be diluted even further, leaving the hedge fund investors owning a larger majority.

Co-op Group is itself in turmoil after the resignation of its chief executive, Euan Sutherland, this month, and the publication of Lord Myners’ excoriating review of its governance and management. It would need to put up more than £100m extra to maintain its shareholding at 30 per cent.

But if it decides not to, it would risk alienating further the ethical investors who have traditionally been attracted to the Co-op Bank’s previous co-operative ownership structure. Some charities began looking for alternative places to bank after the hedge funds became the majority shareholders.

Tim Jones, a spokesman for Jubilee Debt Campaign, an NGO which argues for better repayment terms for poor countries’ debts, said: “We were already in the process of finding a more ethical and viable financial option than the Co-op Bank. If the Co-operative Group’s share diminishes even further, we’re concerned the ethical principles will be put further at risk.”

 Mr Booker said the extra costs had come to light since the bank completed its refinancing in December. He added that the cost of separating the bank from Co-op Group would be about £40m in 2013.

The effect of the extra £400m of losses will cut the bank’s key balance sheet ratio (core tier 1) from almost 9 per cent to 7.2 per cent, only just above the minimum 7 per cent required by regulators.

Co-op Bank confirmed yesterday it had cut 1,000 jobs out of its 10,000-strong workforce and closed 30 of its branches with a further 15 to go this year. In addition, it said savers had stuck with the bank, with retail deposits down only 1 per cent from £28.1bn to £27.9bn at the end of last year.

Mr Booker said the bank had seen some progress in its recovery plan.

Lord King has spoken out for the first time since stepping down nine months ago as Governor of the Bank of England to stress that he knew nothing of an alleged political stitch-up to sell Lloyds bank branches to the Co-op.

In a letter to the chairman of the Treasury Select Committee published yesterday, Lord King said he would have considered such a deal “improper conduct”. The City financier Lord Levene has claimed the bidding process for 631 Lloyds branches was conducted in “bad faith” because the Treasury was determined the Co-op should succeed. He said his own bid never stood a chance.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
peopleMathematician John Nash inspired the film Beautiful Mind
News
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
music
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine