Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The Co-operative Bank has entered exclusive talks to merge with Coventry Building Society, in a deal that would see the private equity-owned high street lender return to mutual ownership.
Co-op Bank said on Thursday that it had started talks with Coventry Building Society, the UK’s third-largest mutualised lender, to “better evaluate the merits of a combination”.
Earlier this month, Coventry submitted a bid for the Co-Op Bank that valued it at more than £700mn via an all-cash offer, according to two people familiar with the talks. A deal would result in the merged group with about £90bn in assets.
The talks mark the latest attempt at consolidation for UK mid-tier banks, which struggle to compete in scale with their larger peers. Although the sector has been prone to merger speculation for years, executing deals has proven a challenge due to the difficulties of merging balance sheets and IT systems.
Co-op Bank, which serves 2.5mn customers and more than 90,000 small and medium-sized enterprises, is backed by US-based investors including Bain Capital Credit and JC Flowers. Co-op Bank, a former subsidiary of the Co-op Group, kicked off an auction process earlier this year.
A successful deal would allow Co-Op to embark on a new phase following a decade of turmoil and then efforts to turn round the business in recent years. The lender first ran into trouble after its disastrous takeover of Britannia Building Society in 2009 at the height of the financial crisis, which exposed it to a pile of bad loans and a £1.5bn capital shortfall.
The bank was rescued by bondholders in 2017 and returned to profit in 2021. Last month, it posted a pre-tax profit of £81mn for the first nine months of the year in as it announced it was “exploring potential strategic opportunities”.
The Coventry Building Society has about 2mn members across the UK and reported assets of £61.6bn in its latest financial statement.
It said it would “carry out due diligence” and that there was “no certainty that any transaction will occur, nor as to the terms on which any transaction might be concluded”.
Co-op has attracted interest from previous suitors and was involved in several failed transactions. US private equity firm Cerberus approached the bank for buyout in 2020, and Co-op’s efforts to merge with Sabadell’s TSB fell through the following year.
The Customer Union for Ethical Banking, the independent union for Co-op’s customers, said a successful deal would “align perfectly with our dual goals: preserving the bank’s world-leading ethical standards and steering it back towards some form of mutual or co-operative ownership.”
Other suitors also expressed an interest in the challenger bank. Private-equity-owned lender Shawbrook made a cash-and-equity offer in recent months that valued the Co-op bank at more than £600mn, according to two people familiar with the talks.
Aldermore, another lender, entered talks with the bank earlier this year before withdrawing from the process while consumer credit group NewDay also looked into it, one of the people added.
