Vulture funds tighten their grip to rescue Co-op Bank

Co-operative members' stake and influence falls in return for £400m

Associate Business editor

The Co-op Bank has completed a £400m cash call in a move that will reduce the Co-operative Group's stake from 30 per cent to just over 20 per cent and result in the loss of one of its directors from the board.

The cash call should finally stabilise the beleaguered bank, but it now faces the task of trying to find a new chairman who has credibility with investors and the City watchdog, after Richard Pym said he would step down.

The new shares were issued at 200p each, compared with a "grey market" price of 340p.

The group fell into the hands of outside investors, many of which are hedge funds, after a £1.5bn hole was discovered in its balance sheet, forcing it to raise cash from its bondholders to plug the gap. All four of the biggest shareholders outside the Co-operative Group – including the hedge funds Perry Capital and Silver Point – supported the cash call.

But the Co-operative's financial problems meant it had to "tail-swallow" to take up its rights to the new shares, meaning it had to sell at the higher price to fund the purchase of the new cheaper shares.

With its stake now just above 20 per cent, it will only have the right to send one director to the board – it had the right to two previously – and would lose the right to any if its stake fell beneath 15 per cent.

The Co-op's governance was branded "dysfunctional" this week by the outgoing independent director Lord Myners, who called for sweeping reforms. The group is set to table a four-point plan at its forthcoming annual meeting in Manchester.

A Co-operative Group spokesman said: "While the size of the group's shareholding will be reduced following the capital raising, we will retain a significant stake and expect to remain the single largest shareholder. The group remains supportive of the bank and its strategy."

The bank revealed in March that it needed to raise fresh money, blaming the cost of PPI mis-selling and the need for more provisions. Its chief executive, Niall Booker, said the funding would mean the bank could return to health. "The business plan is being implemented and there have been some encouraging early signs," he said.

His chairman is believed to feel that the job of turning around the bank is largely complete. Sources close to the bank indicated Mr Pym 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-operative Group's stake is not expected to affect the bank's right to use the name. The two retain an association agreement, and the group could only take back the title through buying the bank out. However, the business Secretary Vince Cable could in theory remove the right to use the name now the bank is no longer co-operatively owned.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Ramsay Bolton in Game of Thrones
tvSeries 5, Episode 3 review
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tv
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence