Coventry Building Society has announced an agreement on the key commercial terms for a £780m takeover of the Co-op Bank.
The deal, reached with the owners of the bank after months of talks, is subject to agreement of the contract and regulatory approval, and would make the Coventry the UK’s seventh largest lender with assets of around £89bn.
And it would see the 152-year-old bank brought back under mutual ownership with a pathway for around 3 million Co-op bank customers to become members of the Coventry.
The co-op sector has lamented its loss of the bank since it was entirely taken over by private investors in 2017. Previously under sole ownership of the Co-op Group, its sale and demutualisation was forced by its financial crisis of 2013, when a £1.5bn hole was found in its finances in the wake of its ill-fated takeover of the Britannia Building Society.
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In response, a group of customers formed their own co-op, Save Our Bank, a customer union which is campaigning to restore the bank to co-op ownership and for wider reform of the banking sector.
The Co-op Bank, which serves more than 90,000 businesses, is currently backed by US-based investors including Bain Capital Credit and JC Flowers. It has maintained links with the co-op movement, retaining its name in return for adhering to its ethical policy and working with apex body Co-operatives UK to support the sector.
Since its rescue in 2017, the bank has been working to restore its finances and returned to profit in 2021.
Coventry – the UK’s third-largest mutual lender with 2 million members and assets of £62.5bn – says it has conducted extensive due diligence over several months, including consultation of its members through surveys and focus groups.
The building society’s board will advocate for the deal and answer member questions at the its AGM in Coventry on 25 April, which eligible members are invited to attend in person or online.
In a letter to members, CEO Steve Hughes said: “This is an exciting moment for the society. We have a very successful history, and we believe this could be the basis of a very successful future – with membership, great value and great service at its heart.
“We’ve spent a lot of time evaluating this opportunity and believe it’s the right thing to do. The Co-operative Bank is a financially stable, profitable organisation with a shared heritage and products and services that complement our own.
“We may be three times bigger, but its customers, colleagues, branches, mortgages and savings balances, and the additional products and services it provides, will make us stronger and able to keep offering the value and service that matter to you. We’re confident that we have the people, capability, and the financial strength to achieve this.”
Robin Fieth, CEO of the Building Societies Association, said: “A strong mutual sector provides choice for consumers and creates resilience for the financial sector. We welcome the recent news from both Coventry and Nationwide which presents an opportunity to provide mutual banking services for businesses and the re-establishment of cooperative banking in the UK.
“When you’re with a mutual, you can be confident that the profits are reinvested in the business and the interests of the members, not hived off to external shareholders. Building societies have a proven track record of being much more likely than banks to keep their high street branches open, which many of their customer-members value greatly, they are now responsible for 28% of all UK branches – up from 14% in 2012.”
Shaun Fensom from Save Our Bank said: “As we have said in previous statements, we are supportive of the potential takeover by Coventry BS of the bank. The good record that Coventry has on ethics, and its position as a leading mutual means that this aligns well with the two principal aims of the Customer Union for Ethical Banking – to hold the Co-op Bank to account on its ethical performance so that it maintains its leading position as an ethical bank, and to work for an eventual return of some form of mutual ownership and control.
“The latest news brings us a step closer to realising the ‘re-mutulisation’ of the Co-op Bank.”
He added: “I would add that, following the acquisition of Virgin Money by Nationwide, this shows that those who said demutualisation was a one-way street were wrong.”
