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".

Recommended

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022
The MoneyWeek Podcast: nuggets of positivity in an extended bear market
Investment strategy

The MoneyWeek Podcast: nuggets of positivity in an extended bear market

Merryn and John talk about he need for higher wages and lower house prices, and why the fact that this is the least dramatic bear market they’ve ever …
1 Jul 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022

Most Popular

Five dividend stocks to beat inflation
Share tips

Five dividend stocks to beat inflation

During periods of high inflation, dividend stocks tend to do better than the wider market. Here, Rupert Hargreaves pick five dividend stocks for incom…
30 Jun 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022
UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022