The hedge funds which own the Co-operative Bank have begun sounding out prospective buyers of the business two-and-a-half years after it was saved from the brink of collapse.
Sky News has learnt that the American investors which took control of the high street lender in 2017 are working with Goldman Sachs, the investment bank, to initiate discussions with potential bidders.
City sources said on Wednesday that the investors, Goldman and Andrew Bester, the Co-operative Bank’s chief executive, had held talks in recent weeks with a number of Britain’s biggest retail banks.
Barclays, Lloyds Banking Group and Royal Bank of Scotland are said to have been among those approached about a deal.
A formal sale process is yet to get underway, but is expected to do so during the course of next year.
It would come as the Co-operative Bank makes painstaking progress in its efforts to transform its operations and financial position under Mr Bester, a former Lloyds executive.
In the third quarter of this year, the company reported a pre-tax loss of nearly £119m as it wrestled with payment protection insurance compensation charges and the cost of separating its IT systems from the Co-op Group, its former parent.
The Co-operative Bank, which positions itself as an ethical lender, has been bailed out twice during the course of the decade.
In 2013, it almost collapsed after trying to buy more than 630 branches from Lloyds, only to discover a £1.5bn hole in its finances that had to be plugged by a group of US hedge funds and the Co-op Group.
Subsequent investigations by the Treasury Select Committee and the City watchdog exposed a string of failings in management, corporate governance and regulatory supervision – including, infamously, the exposure of its chairman Paul Flowers’ private life, which led to him being dubbed ‘the crystal methodist’.
Four years later, it was forced to turn to its owners again for £700m in new funding that saw retail investors swallowing heavy losses.
The Co-op Group sold its 20% stake in the bank to 1% and then exited entirely soon after.
The syndicate of hedge funds which took full ownership of the Co-operative Bank included BlueMountain Capital, GoldenTree Asset Management and Silver Point Capital – all of which are prominent names in the world of distressed investing.
They are said to be pushing to accelerate a sale of the business, while the Co-operative Bank’s board is understood to be keener on a more patient approach on the basis that its five-year turnaround plan has yet to bear real fruit.
Board members are expected to appoint a separate adviser to Goldman ahead of a formal auction getting underway.
A source close to the Co-operative Bank insisted that it had seen growing investor confidence in the Bank, including an upgrade from the credit ratings agency Moody’s on the back of its first full-year operating profit since 2013.
The insider added that increased investment in its digital platform and in promoting its ethical stance were signs of its board’s confidence in the bank’s future.
The Co-operative Bank’s travails have not only proved painful for its directors and investors.
Earlier this year, KPMG, its auditor, was hit with a £4m fine for the supervision of its accounts at around the time of its 2009 takeover of the Britannia Building Society.
The deal saddled the Co-operative Bank’s balance sheet with billions of pounds of toxic property loans.
A further attempt to find a new owner for the Co-operative Bank would come at an acutely painful time for many of the UK’s medium-sized banks, with a protracted period of margin compression squeezing their profits.
Metro Bank has had the most difficult 2019 in the sector, losing most of its market value and shedding both its chairman and chief executive.
However, TSB and Virgin Money UK, which was renamed following that brand’s merger with CYBG, have also struggled to win favour from investors.
TSB’s Spanish owner, Sabadell, is widely expected to put the high street lender up for sale in about two years’ time.
Ironically, TSB comprises the branch network that the Co-operative Bank fought to acquire in 2013, prior to its first brush with insolvency.
The Co-operative Bank and Goldman declined to comment.