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
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Sport
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
ebooks
ebooksA special investigation by Andy McSmith
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

Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

SThree: Trainee Recruitment Consultant

£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Recruitment Genius: Business Control Manager

£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower