The Co-Operative Group and Bank launch revised recapitalisation for regulatory requirements

Raising Capital

The Co-operative Group provided an update on The Co-operative Bank’s strategic plan and recapitalisation plan today, whereby measures to generate GBP1.5bn of Common Equity Tier 1 capital (CET1) will be put in place in order for the bank to comply with regulatory requirement under a comprehensive plan.

A regulatory review of the Bank’s capital position was carried out earlier this year and on 17 June the group announced that the bank needed to raise the CET1. It also outlined its plan to raise the capital by means of a Liability Management Exercise (LME), which involves investors in the bank’s subordinated capital securities.

The bank said it has now received binding commitments from the LT2 Group of investors, which will inject GBP125m of new capital in addition to equalisation of their existing bonds, as well as support from other institutional investors.The recapitalisation plan has been discussed in full with the bank’s regulators, the Prudential Regulation Authority and the Financial Conduct Authority. It has also been backed by leading retail investor campaigners; however, it now requires a wider investor vote.

Under the plan, The Co-operative Group will remain the largest single shareholder of the bank with a 30% share. No other single shareholder is expected to have more than 9.9% ownership without regulatory approval. The Co-operative Group will contribute GBP462m, including a GBP129m group-funded solution targeted at retail investors. A number of retail investors are offered two options, either a lower annual payment with future capital sum or existing annual payment maintained for 12 years without future capital sum.

According to The Co-operative Group, the majority of the bank’s board members will be independent directors. The bank’s values and ethics will also be legally embedded in its constitution and will be upheld by a dedicated board committee. In addition, the group said its new strategy will also focus on retail and small and medium sized business customers.

Group chief executive of The Co-operative Group, Evan Sutherland, stated:

“Now it is about delivery and ensuring that we build on this Plan. The Co-operative Group’s decision to make its significant contribution to the Plan was made balancing our ethical approach to business and our responsibility to the Bank and our other businesses. Our ability to support the financial future and business approach of the Bank was made possible because of our long-term view of the value that will be created in the four to five year transformation plan drawn up by the new management team.

“We are optimistic about the future; there is considerable potential to be realised across the Group and we are now well placed to restore the Co-operative brand to its rightful place at the heart of communities up and down Britain.”

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