The Co-operative Group could cut its historic ties with the Co-operative Bank after the bank revealed a £400m capital shortfall. Losses have grown to £1.3bn for 2013, due to Payment Protection Insurance (PPI) mis-selling provisions and more bad loans.
The bank, which had to plug a £1.5bn hole in its balance sheet last year, is launching a cash call to make up the deficit. That would imply the Co-op Group has to raise a further £120m if it is to retain its 30% stake.
What the commentators said
When the Co-op Bank began trying to fix the £1.5bn black hole in its balance sheet last year, it was “never likely…this would be the end of the story”, says Telegraph.co.uk. The “first cash call is rarely the last” and now “the begging bowl is being passed around once more”. A flotation now looks off the cards – possibly for years.
It’s “unlikely” the Co-op Group will retain its current stake for much longer, says Ian King in The Times. With £1.2bn of debt, and already having to find £263m to help recapitalise the Co-op Bank, it is “unrealistic” to assume the Group can raise the £120m it needs to avoid dilution. Moreover, “what if [the bank] needs more capital down the line?” It seems “unwise” to bet against this.
“There comes a time to say ‘no’ and now is it,” says Elizabeth Fournier in City AM. With an interim chief executive in place following Euan Sutherland’s departure and “rumours of intense in-fighting”, the Co-op Group has enough on its plate without giving its “naughtiest child” more cash.
The reason to retain its 30% holding was to keep the bank abiding by the co-operative movement’s ethical values. But the provisions for consumer credit rule breaches and PPI mis-selling suggest “those days are already long gone”. The Group should “hold on to its cash and let the black sheep of the family go it alone”.