Coventry Building Society has tentatively offered £780m to buy the Co-operative Bank from its hedge fund owners, in what could be the latest in a string of takeovers among UK lenders.
The offer follows nearly four months of exclusive talks between the two lenders, which began in December. If a deal is completed, it would create a new high street challenger with almost 5 million customers and an £89bn balance sheet
However, there are likely to be weeks of negotiation ahead before a deal can be finalised and both groups have stressed that there was still “no certainty at this stage” that a takeover would take place.
The “non-binding” offer signals that enough due diligence has been done over the last three months to convince the management of Coventry, and the Co-operative Bank’s hedge fund owners, that a deal could be in their best interests.
“We have a very successful history, and we believe this could be the basis of a very successful future – with membership, great value and great service at its heart,” Coventry Building Society’s chief executive, Steve Hughes, said.
“The Co-operative Bank is a financially stable, profitable organisation with a shared heritage and products and services that complement our own … we’re confident that we have the people, capability and the financial strength to bring both organisations together successfully over a number of years.”
The two sides will now continue talks, and said that they were “working together to enter into definitive agreements in due course”. “A further announcement will be made as appropriate,” they added.
The prospective deal adds to a wave of consolidation among UK lenders, and follows Barclays’ purchase of Tesco Bank in February for £700m, and Nationwide Building Society’s £2.9bn takeover of rival Virgin Money, which was agreed in March.
But, like its fellow building society Nationwide, Coventry has decided not to give its members a vote on the potential deal, saying it is not required under the Building Societies Act.
“In coming to this decision, the board has been informed by member surveys and focus groups, which clearly signalled their priorities as maintaining our value proposition and service quality,” Coventry said.
The Co-operative Bank has been fielding takeover offers since at least 2020, when it was approached by the New York-based private equity firm Cerberus Capital Management, which offered a mere £270m.
But its owners – Silver Point Capital, GoldenTree, Anchorage Capital, JC Flowers and Bain Capital Credit, Cyrus Capital and the fund manager Invesco – have been more open to a deal since the bank returned to profit in 2021, which has helped improve its potential price tag.
The bank traces its origins to the 1872 establishment of the Co-operative Wholesale Society, the body that would become the Co-operative Group, and provided financial services to the wider co-operative movement in Britain, in which member-owned businesses worked for the common good.
However, it ran into trouble when a £1.5bn hole was discovered in its accounts after its disastrous takeover of the Britannia Building Society in 2009. The problem resulted in the bank separating from the Co-operative Group and being rescued by the consortium of hedge funds, which took full control in 2017.
Its reputation also suffered after its former chair, the ex-Labour councillor and Methodist church minister Paul Flowers – nicknamed the “Crystal Methodist” – pleaded guilty to possession of cocaine, crystal meth and ketamine in 2014.
But the lender managed to revive its fortunes, returning to profit for the first time in a decade, just in time for its 150th anniversary in 2022.
