The Co-operative Bank is to reduce its branch network by at least 15 per cent as it announces it has secured a new rescue deal to plug its £1.5bn capital black hole.
Parent company Co-op Group has revealed it is targeting cost savings for the bank which it plans to achieve partly through “greater levels of self-service” via online channels.
In an announcement today, the Co-op Group says: “Between 30 June and the end of 2014, the bank expects to significantly rationalise its branch network by at least 15 per cent of its current estate of 324 branches and migrate basic transactions onto a predominantly self-self service basis, in particular through the digital channel.”
The Co-op Group also plans to cut back its call centre network, and close “certain non-profitable branches”.
The Co-op declined to further details about the number of possible jobs affected, though staff have not entered into consultation at this stage.
News of the cuts to the branch network come as the Co-op has agreed a new rescue deal with bondholders and institutional investors.
In June, the Co-op set out a plan to plug a £1.5bn capital shortfall via £1bn from the group and £500m from bondholders through an equity swap.
It has now set out a new plan after hedge fund bondholders and retail investors opposed the original proposals.
The revised deal will see Co-op Group contribute £462m. Bondholders holding lower tier 2 capital securities, known as the LT2 Group, will inject £125 of new capital in the bank.
As part of the deal, Co-op Group’s stake in the bank will drop to 30 per cent.
The new plan will see at least £1.062bn raised through a “liability management exercise” for holders of preference shares paying 9.25 per cent and perpetual subordinated bonds paying 13 per cent.
This group, which the Co-op says includes a large number of retail investors, will be offered a choice between notes paying 11 per cent a year with the original investment repaid after 12 years, or instalment notes paid without interest in equal instalments over 12 years.
Bondholders who were due to receive 5.55 per cent interest can also exchange their bonds for notes paying 11 per cent. The plans must be approved by bondholders.
The Co-op is offering an “early participation incentive” which will award a higher consideration to bondholders if they take part by 29 November.
Co-op Group chief executive Euan Sutherland says: “Today we have taken a major step forward towards achieving our plan to secure the future of the bank, putting in place an agreement with a number of our leading investors on a comprehensive plan that will raise the necessary £1.5bn of capital.
“Through the process, the Co-op Group has made the interests of retail investors a key priority. A significant proportion of the new funds invested by the group are targeted at those investors. Whilst retail investors will, like all bondholders, suffer a loss in value, we believe these options secure the best possible outcome for them, in the circumstances.”
Mark Taber, which represents an action group of Co-op Bank retail investors, says: “”This deal has been extremely hard fought and is now a much better solution for retail holders and pensioners. Every stakeholder had to make concessions to arrive at this consensual restructuring to stabilise The Co-operative Bank.
”I want to thank The Co-op Group for listening to our concerns and offering a solution for our retail holders which incorporates our ideas for preserving their income for long periods of time. It is now up to all holders to decide whether to accept but we believe it is a much better solution.
”We now hope our support of the offer will play its part in the future success of the bank under the innovative hybrid structure which enshrines co-operative values while providing sound governance and access to capital markets.”