The Co-op Bank is in talks with Coventry Building Society about a merger that would return the once-troubled lender to mutual ownership.
It said yesterday it was in ‘exclusive discussions’ with Coventry, Britain’s second-biggest building society after Nationwide, about a deal.
That would return Co-op Bank to mutual ownership following its rescue by hedge funds, and create a group with almost 5m customers. Co-op Bank’s owners have said it was looking at ‘potential strategic opportunities’.
The bank came close to collapse in 2013 with the discovery of a £1.5billion black hole in its finances after a troubled merger with building society Britannia in 2009.
It split from the Co-operative Group, which retained a 20 per cent stake until 2017, and was bailed out by hedge funds.
Merger talks: Co-op Bank told investors it is in ‘exclusive discussions’ with Coventry – Britain’s second biggest building society behind Nationwide – over a possible deal
Its current owners are Silver Point Capital, Golden Tree, Anchorage Capital, JC Flowers, Bain Capital Credit, Cyrus Capital and Invesco.
The 151-year-old bank’s troubles forced ex-chairman Reverand Paul Flowers – at the time, a Methodist church minister – to resign after just three years.
Months later the former Labour councillor was involved in a sex and drugs scandal after he was caught on camera buying class A drugs, including crystal meth.
The expose by the Mail on Sunday in November 2013 saw him dubbed ‘the crystal methodist’.
The bank became profitable again two years ago and more than quadrupled profits in 2022, under chief executive Nick Slape. Aldermore Bank and Shawbrook Group were this year rumoured to be considering bids.
The bank has been the target of offers since at least 2020, when it was approached by US private equity firm Cerberus.
But its owners are reportedly more open to offers since it returned to profit in 2021. Cerberus offered £270million three years ago, while Shawbrook tabled an £800million bid, according to reports.
AJ Bell investment director Russ Mould said a deal would be ‘a welcome return to calmer waters after a difficult decade’.
A merger would create a lender with approaching 5m retail customers, bringing together Co-op Bank’s 2.5m customers and Coventry’s 2m members.
Co-op Bank bought Sainsbury’s Bank’s mortgage book in August for £464million, taking on about 3,500 customers, while Coventry manages nearly £50billion worth of mortgages, and more than £45billion of savings.
It reported higher profits this year due to UK interest rates – at a 15-year high – and paid out more to savers than the average.
Co-op Bank said: ‘This period of exclusivity will enable the society and the bank to better evaluate the merits of a combination.
‘There is no certainty that these exclusive discussions will result in a transaction. A further update will be provided in due course.’
Coventry said a deal would only take place ‘if it is determined by the society’s board to be in the best interests of current and future members’.
