More trouble at the Co-op

The Co-operative Bank has issued a cash call to plug a gaping hole in its balance sheet.

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

It's "unlikely" the Co-op Group will retain its current stake for much longer, says Ian King inThe 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' andnow 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".

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