J.C. Flowers, Bain buy stake in recovering Co-op Bank

Manchester-based Co-operative Bank said on Wednesday that US private equity firms J.C. Flowers and Bain Capital Credit agreed to buy a stake in the self-styled “ethical bank” from an existing investor, hedge fund BlueMountain.

Co-operative Bank has been recovering in recent years from a number of scandals that resulted in a rescue by a group of hedge funds.

The news of new shareholders came as Co-operative Bank published a first quarter trading update that it said showed its turnaround strategy is ahead of schedule.

Total core deposits increased by 2% in the quarter to £20.6 billion.

Total income in the quarter increased 7% to £81.2 million. Statutory profit before tax for the quarter was £7.2 million and underlying profit was £2.6 million.

Co-operative Bank’s net core residential lending increased 6% in the quarter to £18.1 billion “with a strong pipeline going into 2Q 21 of £2.0bn.”

Co-operative Bank said in a stock exchange statement: “The Co-operative Bank p.l.c. today announces an anticipated change in the shareholders of its ultimate holding company, The Co-operative Bank Holdings Limited, resulting from the proposed purchase by J. C. Flowers & Co and Bain Capital Credit of the shares currently held by BlueMountain.

“The acquisition remains subject to regulatory approval and follows the announcement of the closure of BlueMountain’s fund. 

“BlueMountain currently holds 10.01 per cent of the A shares and 12.05 per cent of the B shares of The Co-operative Bank Holdings Limited.

“The acquisition would see J. C. Flowers & Co together with Bain Capital Credit become a significant investor in the bank alongside its five other existing financial sponsor investors.”

Co-operative Bank CEO Nick Slape said: “Since we began our turnaround, the backing of our long-term shareholders has enabled us to make significant progress and we are extremely grateful for all the support they have shown.

“We are delighted to welcome J.C. Flowers & Co and Bain Capital Credit and we are pleased that they share our positive view of the future possibilities for our bank.

“This investment builds on the encouraging reception to our £200m debt issuance in November 2020 and is an endorsement of the progress achieved in our five year transformation plan to date, as we anticipate our bank returning to a position of sustainable profitability from 2021.

“As our recent results show, we are on track with our transformation and the business continues to perform resiliently as we focus on supporting our customers during these challenging times.

“We head into the next stage of our transformation with growth in mortgage lending, a renewed and growing SME banking business and improved digitisation to better serve customers.

“Our commitment to being a leader in ESG has been central to our brand for decades, given our heritage in the co-operative movement, and we believe this sets us apart in the market as we work with all our stakeholders to realise our Bank’s potential.”

Tim Hanford, Head of Europe for J.C. Flowers & Co, said: “We have followed the development of The Co-operative Bank over the last decade and are impressed by the progress that has been made by the management team and board.

“We now look forward to partnering with them to take advantage of some of the opportunities available in this post-COVID UK banking environment.”

Fabio Longo of Bain Capital Credit said: “We are excited to partner with The Co-operative Bank and support management in their plan for continued growth and value creation.

“The Co-operative Bank is truly unique in its ethical positioning, which is backed by a loyal customer base.

“We look forward to supporting this value proposition to existing and future customers.”

On first-quarter trading, Co-operative Bank CEO Slape said: “I am encouraged by the bank’s financial performance in the first quarter, achieving a small underlying profit — an important first step towards 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.

“Our SME banking proposition is developing well with the launch of a new mobile app, credit card and same-day onboarding, alongside a strong pipeline of new customers switching to join us.

As I reflect on the anniversary of the first national lockdown, I have been proud of how colleagues have responded to the challenges we have faced and the way in which they have adjusted to new ways of working whilst continuing to step up for our customers.

“We are working closely with our charity partners in tackling youth homelessness and economic abuse, social issues which have become more acute over the past year.

“I was delighted that we were awarded ‘Best Charity Banking Provider’ by Business Moneyfacts for the sixth consecutive year.

“We are also pleased to have retained our position as the UK’s leading ethical banking brand.

“As announced separately today, we are pleased to welcome JC Flowers and Bain Capital Credit as new investors in the Bank, subject to regulatory approval, and look forward to working with them and all our stakeholders as we develop our future thinking.

At the half-year we will have reached the midpoint of our turnaround strategy and we are ahead of where we expected to be.

“This is a positive start to the year and we have upgraded our guidance in relation to customer assets and CET1 ratio.”