Co-op Bank’s cash call to reduce Co-op Group’s stake

The Co-op Bank has just completed a £400 million cash call that will slash the Co-operative Group's stake in the bank and decrease the number of directors nominated by the distressed group on its board.

Under the plan, the bank is placing 200 million new shares priced at £2 apiece. According to a statement by the lender, four of its major investors, including American hedge fund Perry Capital, ill buy up 31 per cent of the new shares on offer.

The move will slash the Co-operative Group's stake in the bank from current 30 per cent to slightly over 20 per cent. In addition, it will result in the loss of one of its directors from the bank's board. Currently, it has right to appoint two directors on the bank's board.

Speaking on the topic, the Co-op Group said in a statement, "While the size of the group's shareholding will be reduced we will retain a significant stake and expect to remain the single largest shareholder."

In case the group's stake slips below 20 per cent, it will lose its veto power to block any move from the bank's investors to alter its ethical co-operative values. In case its stake slips below 15 per cent, it will not be able to appoint any director on the Coop Bank's board.

The name of the bank will remain unchanged even after the decline in the Co-op Group's stake in the bank.

Meanwhile, Co-op Bank CEO Niall Booker acknowledged that the short to mid-term outlook remained challenging but added that the board was still mulling a stock-market listing. However, he didn't announce a specified period for the listing.