Troubled lender Co-operative Bank PLC (LON:CPBB) said it has put itself up for sale again, while separately announcing that it has resolved a contractual dispute with outsourcing firm Capita PLC (LON:CPI).
The Co-op Bank – which was infamous for having convicted drug user Paul Flowers, the so-called ‘Crystal Methodist” as its chairman - said it is commencing a sale process, inviting offers for the bank as well as considering ways to raise equity capital.
The lender said the decision is due to the need to "build its capital and meet longer-term UK bank regulatory capital requirements", with low interest rates reducing its ability to generate income.
It's current chairman, Dennis Holt, said: “The bank has met its Pillar 1 regulatory capital requirements continuously since 2014 and expects to continue to do so.
“At the same time, since we began work on the bank's turnaround, the board has always been clear that we would need to build capital for the future.”
He added: “We are now commencing a sale process, alongside other options. The bank's ethical heritage and customer proposition will be a central consideration in this.”
Liam Coleman, Co-op Bank’s chief executive, added: 'While our plan has been impacted by lower for longer interest rates, the costs associated with the sheer scale of the transformation and the legacy issues we faced in 2013, there is considerable potential to build the bank's retail franchise further using the strength of the brand, its reputation for strong customer service and distinctive ethical position.'
Significant loss ...
The Co-op Bank said it expects to report a "significant" loss for 2016, when it reports full-year results in March, although it would be less than its 2015 loss.
Last September, Co-operative Group - the mutually-owned supermarkets to funeral services group - which still owns a fifth of the bank wrote down the value of its stake to £140mln from £185mln, implying a total value for the lender of £700mln.
It is the second time that Co-op Bank has sought outside help having nearly folded in 2013 after disclosing a £1.5bn hole its finances from losses associated with real estate loans blamed on its merger with the Britannia building society in 2009.
The bank was rescued by bondholders, mostly US hedge funds, in 2013 but last month those bonds fell to historic lows after a warning on January 26 that it would not meet capital requirements by 2020.
Dispute resolved ...
In a separate statement this morning, both the Co-op Bank and Capita said they have resolved their contractual differences, with the outsourcer set to continue providing mortgage administration services to the lender.
However, work on the overhaul of the Co-op's IT system will cease, with the amended contract with Capita to run until December 2020, with an option to extend after that.
The FTSE 100-listed group said: “Capita is pleased to have resolved this issue and importantly secured the jobs of our 740 employees on this contract in Plymouth, Leek and London.”
In late afternoon trading, Capita shares were down 2%, or 11p at 515p.
Broker Peel Hunt reiterated a ‘reduce’ rating and 466p price target on stock.
In a note to clients, Peel Hunt analyst Christopher Bamberry said: “No indication of financial impact (including potential write offs), but the mortgage processing element will continue to 2020.
“We retain or Dec'17 PBT of £508.9m to give EPS of 60.4p. Shares trading on 8.4x Dec'17. We remain cautious.“
-- Recasts, adds further Co-op Bank comment, background, updates Capita share price--