Bain and JC Flowers snap up stake in the Co-operative Bank

Two US private equity giants have become major shareholders in the UK’s Co-operative Bank, amid speculation that they could lead a consolidation of the UK’s mid-sized banks.

JC Flowers and Bain Capital Credit have bought an approximately 10% stake in the bank from BlueMountain Capital, a hedge fund where current Barclays boss Jes Staley was once a managing director.

The deal, whose value was not revealed, is another important change in the ownership of the Co-operative Bank, which has been transformed in the past decade.

Although never actually run as a co-op itself, the bank was long fully owned by the Co-operative Group, which was itself owned by customers and other co-operatives.

However, in the early 2010s, the bank found a gaping £1.5 billion hole in its finances, a revelation which eventually led to the Co-operative Group selling 80% of its stake to US hedge funds in 2014.

The Co-operative Bank is still the only UK high street bank to have an ethics code in its founding documents – however, its ties to the Co-operative movement were severed in 2017 when the Group sold its remaining shares.

This was highlighted by Fabio Longo at Bain on Wednesday: “The Co-operative Bank is truly unique in its ethical positioning, which is backed by a loyal customer base. We look forward to supporting this value proposition to existing and future customers.”

Tim Hanford, head of Europe for JC Flowers said: “We now look forward to partnering with them to take advantage of some of the opportunities available in this post-Covid UK banking environment.”

When Sky News first reported on the deal before it had been signed earlier this month, banking sources told the broadcaster that the deal suggests JC Flowers and Bain could push the Co-operative Bank to start buying some of its rivals.

Speculation is rife about a consolidation among the mid-sized UK banks, with Sainsbury’s Bank up for sale and TSB potentially coming to market.

Separately on Wednesday, the Co-operative Bank announced it had swung to a £7.2 million pre-tax profit in the first three months of the year, from a £27 million loss a year earlier. It came on total income of £81.2 million, up 7%.

Chief executive Nick Slape said: “I am encouraged by the bank’s financial performance in the first quarter, achieving a small underlying profit – an important first step towards sustainable profitability from 2021.

“We have delivered a resilient performance by maintaining our focus on income generation, simplification and by reducing our operating costs. Our retail business continues to grow, with net residential lending increasing by 6% in the quarter with a strong pipeline.”