Ex-Trade Minister Eyes Co-op Bank Investment
A private equity firm which counts a former Government minister among its executives is in talks to buy a stake in the Co-op's banking arm as part of its £400m rescue fundraising.
Sky News has learnt that Corsair Capital, where Lord Davies, the former trade minister, is a partner, is one of several private equity groups and hedge funds which are lining up to put tens of millions of pounds into the mutual's struggling banking arm.
Apollo Management, one of the world's largest investment firms, is also understood to have expressed an interest.
The opportunity for new investors to acquire a stake in the Co-op Bank is expected to arise because some existing shareholders, including the Co-op Group, are unlikely to take up their full allocation of rights to buy new shares.
These rights are then sold in a process known as tail-swallowing.
The Co-op Group owned the entirety of its banking arm until last year, when the discovery of a £1.5bn black hole in the lender's balance sheet forced it to shrink its ownership interest, ceding control to bondholders such as the US hedge funds Perry Capital and Silver Point.
The Group now owns 30%, and owes more than £250m as part of the initial fundraising, as well as a further £120m that would be required to maintain its stake at that level.
It is likely to invest sufficient funds to keep its stake above 20%, executives have indicated, since the bank's ability to continue using the Co-op name could be jeopardised if it fell below that level.
The need to raise an additional £400m emerged in March as the legacy of past insurance mis-selling, IT glitches and other problems continues to haunt the mutual.
Corsair's potential investment in the Co-op Bank is interesting both because of Lord Davies's role at the firm, and its plan to acquire a significant stake in a network of more than 300 Royal Bank of Scotland branches being sold by the state-backed lender.
That deal will result in the stock market listing of Williams & Glyn, which will also be backed by the Church of England's pension fund, probably in 2016.
A report published last week by Sir Christopher Kelly, a former civil servant, castigated the former management of the Co-op Bank, pinning much of the blame for its £1.3bn loss in 2013 on the decision to merge with the Britannia Building Society in 2009.
A string of other inquiries are also under way into the crisis, although the Financial Conduct Authority and Prudential Regulation Authority are unlikely to complete their reports for some time.
Up to £5m in bonuses owed to former Co-op Bank directors have been withheld, although its ability to claw back money already paid to them is severely restricted.
A spokeswoman for the Co-op Bank declined to comment on the progress of its £400m capital-raising, while neither Apollo nor Corsair could be reached for comment.