Hedge fund sells minority stake in Co-op Bank to US private equity firms

Suban Abdulla
·3-min read
LONDON, ENGLAND - APRIL 05: A general view of a branch of the Co-operative bank at Cornhill on April 5, 2019 in London, England. (Photo by John Keeble/Getty Images)
Co-op Bank also posted a £7.2m pre-tax profit loss in the first three months of 2021, from a £27m loss a year earlier. Photo: John Keeble/Getty Images

The Co-op Bank announced on Wednesday that two US private equity companies have agreed to buy a minority stake in the company from an existing investor.

JC Flowers and Bain Capital Credit collectively bought a 10.01% stake of class A shares from BlueMountain Capital — a hedge fund where current Barclays (BARC.L) chief Jes Staley was once a managing director.

The transaction, which also gives the pair access to 12.05% of B shares, remains subject to regulatory clearance.

B shares are a class of shares issued by a company which offer less advantageous voting rights to shareholders than class A shares. 

While the value of the deal was not disclosed, it marks another important change in the ownership of the bank, which has been transformed in the last 10 years after it found a gaping £1.5bn ($2bn) hole in its finances. 

The revelation led to the Co-operative Group sold its share in Co-op Bank, which is currently controlled by a group of US hedge funds, who bailed it out in a £700m rescue deal in 2017.  

Silver Point Capital, GoldenTree, Anchorage Capital, Cyrus Capital and fund manager Invesco, together own 85% of the bank. JC Flowers and Bain Capital Credit will take over BlueMountain's share. 

New York-based JC Flowers — one of the most prominent private equity investors — was founded in 2001 and focusses on global investments in banking and financial services. 

The company run by billionaire former Goldman Sachs (GS) partner, J Cristopher Flowers, currently has $5.4bn worth of assets under management, including notable UK deals. It played a pivotal role in providing capital to enable the demutualisation and stabilisation of the Kent Reliance Building Society following the 2008 financial crash.

Buyout firm, Bain Capital, which is based in Boston, recently struck a deal to acquire LV=, one of Britain's oldest financial services mutuals.

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On Wednesday, it also posted a £7.2m pre-tax profit loss in the first three months of 2021, from a £27m loss a year earlier. It came on total income of £81.2m, up 7%.

The lender's restructuring plan was also ahead of schedule, it said in the separate trading update. 

"At the half-year we will have reached the midpoint of our turnaround strategy and we are ahead of where we expected to be," chief executive Nick Slape said.

Slape who was appointed CEO last year, added that he expects the bank to return to "sustainable profitability" from 2021.

"We have delivered a resilient performance by maintaining our focus on income generation, simplification and by reducing our operating costs. Our retail business continues to grow, with net residential lending increasing by 6% in the quarter with a strong pipeline," he added. 

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