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UPDATE 3-Britain's Co-op Bank confident of raising funds to secure future
April 11, 2014 / 6:35 AM / 4 years ago

UPDATE 3-Britain's Co-op Bank confident of raising funds to secure future

* 2013 pretax loss 1.3 billion pounds

* Bank won’t make a profit in 2014 or 2015

* Confident of raising capital even without parent’s backing

* Bank CEO says Co-op Group could pursue “tail-swallow”

* CEO says investors ‘very, very supportive’ (Adds comment from bank’s CEO on Co-op Group’s options, pay)

By Matt Scuffham

LONDON, April 11 (Reuters) - Britain’s loss-making Co-operative Bank said it was confident of raising the extra funds it needs to secure its future, even without the backing of troubled parent the Co-operative Group.

The country’s eighth-biggest lender on Friday confirmed it lost 1.3 billion pounds ($2.2 billion) last year and warned it would not make a profit this year or next.

The bank, which fell under the control of bondholders including U.S. hedge funds last December after a 1.5 billion pound capital shortfall was exposed, said last month it needed to raise another 400 million to cover the cost of past misconduct.

The future of the Co-operative Group, whose activities range from supermarkets to farms, is also in doubt following the resignation on Thursday of independent director Paul Myners, whose plans to reform Britain’s biggest mutual had met with resistance from members.

The Co-operative Group, which owns 30 percent of the bank, has yet to decide whether to take part in its fundraising.

“I‘m confident we’ll raise the 400 million even if the group does not participate. Shareholders are very, very supportive and I really, really think that we’re going to get this through the gate,” Co-op Bank Chief Executive Niall Booker said on Friday.

The bank’s other major investors, which include hedge funds such as Perry Capital, Beach Point Capital and Silver Point Capital, were not immediately available to comment.

Banking industry sources say they have little choice but to come up with more money or risk losing the 1.2 billion pounds they have already put in.

Booker apologised to the bank’s 4.7 million customers for its troubles, which were exacerbated when former chairman Paul Flowers was arrested last November as part of an investigation into the supply of illegal drugs.

“We appreciate that customers and other stakeholders continue to feel angry about how past failings placed the future of the business so seriously at risk. I would like to apologise to them,” he said.

Despite the negative publicity, Co-op Bank said the number of customers using the bank for their main personal current account rose slightly last year.


The Co-operative Group still owes the bank 263 million pounds as part of its original bailout and would need to invest another 120 million pounds to retain its 30 percent stake after the latest fundraising.

“It’s a decision for them. What I can say is they are supportive of the quantum and the need for the bank to raise this amount of capital,” Booker said.

Booker said Co-op Group had a number of options, including what financiers call a “tail-swallow”. This would involve selling some of its rights to new shares in the bank to generate enough money to cover the cost of taking up the rest. That option would not require the group to inject new cash and would limit how much its stake is reduced by.

Banking industry sources say the decision is likely to come down to whether the group, which is expected to show a 2013 loss of around 2 billion pounds, can afford to stump up more money.

It is selling assets to raise funds and is considering selling its pharmacy business which bankers say could fetch between 450 million and 500 million pounds.

Co-op Bank must raise the new funds because its core tier 1 capital ratio, a measure of a bank’s financial strength, has dropped to 7.2 percent, dangerously close to the 7 percent minimum required by Britain’s financial regulator.

The bank said it would not pay close to 5 million pounds due to some former directors and senior executives. However, it risked criticism from lawmakers and Co-op members after revealing Booker would be paid 4.6 million pounds in his first 18 months in the job.

Booker said he was aware of concerns over his pay so had worked with the board to tie a significant proportion of his remuneration to the bank’s survival. He said he had committed to stay with the bank until its future is secure.

“Over the longer term and, as the bank returns to a more stable state, I would expect to hand over to a new chief executive,” Booker said.

$1 = 0.5961 British Pounds Editing by Erica Billingham

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