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Co-operative Bank will be forced to slash costs after rescue, says Moody's Co-operative Bank will be forced to slash costs after rescue, says Moody's
(about 7 hours later)
The Co-operative Bank will be forced to take the axe to costs, according to the ratings agency Moody's in its latest analysis of the bank after hedge funds intervened in the previously mutually owned institution. The Co-operative Bank will be forced to take the axe to costs, according to the ratings agency Moody's in its latest analysis of the bank, after hedge funds intervened in the previously mutually owned institution.
Moody's released its analysis as the Treasury select committee of MPs called the former Co-op Bank boss Barry Tootell – who quit when Moody's downgraded the bank's credit rating to junk in May – and former chairman Paul Flowers to give evidence next week. Moody's released its analysis as the Treasury select committee of MPs called former bank chiefs to give evidence next week: the ex-head of the Co-op bank, Barry Tootell, who quit when Moody's downgraded the bank's credit rating to junk in May, and the ex-chairman Paul Flowers.
Moody's downgrade in May began to shed more light on the problems inside the bank, which needs £1.5bn of capital. This is being supplied by a rescue package being put together under which bondholders – led by the US hedge funds Silver Point Capital and Aurelius – will end up with a 70% stake in the bank and leaving the Co-operative Group, which also runs grocers, funeral homes and pharmacies, just 30%. Moody's downgrade of the bank's credit rating in May began to shed more light on the problems inside the bank, which needs £1.5bn of capital.
More details about the transaction – which is expected to require Co-op Group to plough up to £500m into the bank – are expected to be released soon as prospectuses must be issued to bondholders to encourage them to support the rescue package. The capital is being supplied by a rescue package under which bondholders, led by the US hedge funds Silver Point Capital and Aurelius, will end up with a 70% stake in the bank, leaving the Co-operative Group, which runs grocers, funeral homes and pharmacies, with 30%.
"The bank is yet to release more details about its new management structure and business plan. The move from mutual to institutional control will inevitably create tensions and uncertainty over the longer-term strategic direction – the past two decades offer several examples of banks which have failed to make that transition," said Carlos Suarez Duarte, a senior analyst at Moody's. More details about the transaction, which is expected to require Co-op Group to plough up to £500m into the bank, are expected soon as prospectuses must be issued to bondholders to encourage them to support the package.
He did not expect a change in the strategy in the short term but said: "We continue to believe that Co-operative Bank will need to go through an extensive cost-restructuring process in order to return to sustainable profitability. As a result, we believe that the bank still faces significant execution risk – balancing its business values with the challenges of an extensive cost-restructuring process". "The bank is yet to release more details about its new management structure and business plan. The move from mutual to institutional control will inevitably create tensions and uncertainty over the longer-term strategic direction. The past two decades offer several examples of banks which have failed to make that transition," said Carlos Suarez Duarte, a senior analyst at Moody's.
He said he did not expect a change in the strategy in the short term, but said: "We continue to believe that Co-operative Bank will need to go through an extensive cost restructuring process in order to return to sustainable profitability. As a result, we believe that the bank still faces significant execution risk – balancing its business values with the challenges of an extensive cost-restructuring process."
In evidence to MPs this week, Peter Marks, the boss of the Co-op Group until May, described the fate of the bank as a "tragedy". The MPs are investigating the collapse of Verde – the code name for the planned sale of 631 Lloyds branches which the Co-op spent two years attempting to buy before pulling out in April.In evidence to MPs this week, Peter Marks, the boss of the Co-op Group until May, described the fate of the bank as a "tragedy". The MPs are investigating the collapse of Verde – the code name for the planned sale of 631 Lloyds branches which the Co-op spent two years attempting to buy before pulling out in April.
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