The US hedge funds preparing to assume near-full control of the Co-operative Bank have begun a search for a top executive to accelerate the struggling lender’s path back towards profitability.
Sky News has learnt that the committee of bondholders which this week struck a £700m deal to rescue the Co-op Bank has instructed headhunters to identify a chief restructuring officer (CRO) to help lead their turnaround plan.
Insiders said that Korn Ferry, a search firm, had been drafted in to recruit the CRO, who will report to Liam Coleman, the Co-op Bank’s chief executive.
News of the plan comes a day after the hedge funds, led by Blue Mountain Capital Management and Silver Point Capital, agreed to inject hundreds of millions of pounds into the lender to avoid their previous investments being wiped out and the Bank of England moving in to wind it up.
Although the proposed deal will take several months to close and is subject to a vote by existing bondholders, Wednesday’s announcement provided some reassurance to four million Co-op Bank customers who have faced a protracted period of uncertainty over its future as an independent business.
Sources said that the recruitment of a CRO would allow Mr Coleman to focus on a growth strategy for the bank even as its balance sheet continues to shrink in the wake of the crisis which saw it having to be rescued in 2013.
“There is a huge amount of operational restructuring still to be done,” said one analyst.
Under the hedge fund consortium’s plans, they will pay £250m for new shares and swap £443m of existing debt for equity.
The funds require 75% approval for their proposal, and sources said that Invesco Asset Management, which is the largest bondholder excluding those on the ad hoc committee, has indicated that it would support them.
In addition to the new capital, £100m will be invested in the Co-op Bank’s new standalone pension scheme following tensions over the division of the £10bn scheme shared with the Co-op Group.
The current arrangement includes a ‘last man standing’ provision which means that each side is liable for the whole scheme if the other Co-op entity goes bust.
That arrangement will be dissolved in all but limited circumstances, according to this week’s statement.
If the restructuring is completed, the Co-op Group – once the sole shareholder in the lender that carries its name – will see its stake in the Co-op Bank reduced to 1%.
Despite the reduction in the mutual’s holding, the Bank has stressed that its commitment to “values and ethics” will be safeguarded.
It added that it saw the potential to pay a dividend to shareholders in 2021 if its business plan was delivered over the coming years.
The Co-op Bank has been hit by a string of legacy issues, as well as the challenge posed by ultra-low interest rates, since its original £1.5bn bailout in 2013.
The lender announced an annual loss this year of £477m, taking its total losses since its rescue in 2013 to well over £2.5bn.
The Co-op Bank’s balance sheet ballooned following a disastrous merger with the Britannia Building Society, and then ran into trouble when it tried to buy more than 600 branches from Lloyds Banking Group.
Its former chairman, Paul Flowers, brought it into disrepute when his drug-taking and sexual proclivities were exposed by a tabloid newspaper, while his financial competence was questioned by MPs.