Co-op Bank Taps Funds Over £6bn Optimum Sale

By Mark Kleinman, City Editor

The‎ troubled Co-operative Bank has approached some of the world's biggest distressed investment funds about a sale of billions of pounds of British mortgages as part of its revival plan.

Sky News‎ has learnt that advisers to the Co-op Bank have held talks with funds including Apollo Management, Blackstone and CarVal about potential deals for parcels of the £6.6bn Optimum portfolio.

The ‎talks with prospective investors are ongoing and are likely to result in a series of transactions involving different structures for the assets, which the banking regulator has ordered the Co-op Bank to sell.

A number of other unidentified parties have also held talks with the Co-op Bank about buying parts of Optimum, which the lender adoped after its merger with the Britannia Building Society in 2009.‎

The ‎Optimum assets were partly responsible for the Co-op Bank being the only one of eight big lenders to fail stress tests set by the Bank of England in December.

News of the talks with potential buyers of Optimum's assets comes just days before the formerly mutually owned lender releases its annual results for 2014.

Sky News revealed last month that the chief executive of the Co-operative Bank was in talks about extending his contract amid continuing pressure from regulators for management continuity at the top of the company.

Sources said that Niall Booker, who took over in 2013 as the bank faced the threat of collapse, is likely to sign a rolling six-month contract to take him beyond his existing deal, which expires in June.

An announcement about his position is expected to be made either before or alongside the results, which are likely to be published next week.

Mr Booker, a former head of HSBC's North American operations, is understood to have had a difficult relationship with some of the bondholders who became major Co-op Bank investors as part of its rescue restructuring just over a year ago.

As a consequence of its stress test failure, the Co-op Bank postponed a vote on incentive awards for Mr Booker and senior colleagues because the proposals "include measures which may no longer be appropriate".

There have been no subsequent disclosures about revised terms for those payouts, although details may emerge alongside or soon after the results.

Some of the US hedge funds which now control a majority of the Co-op Bank's equity have pressed for Mr Booker to work to restructure the organisation more aggressively, insiders say.

At the time of the stress test failure, Mr Booker said: "We have achieved the target of building our capital base and the actions we have taken during the first year of our business plan have made the Bank more secure for the benefit of all stakeholders.

"Our key ratios around capital, liquidity and leverage at the present time are significantly strengthened, we're ahead of schedule in the disposal of Non-core assets and the stability of our core franchise is improving.

"However, given we are in the early stage of our plan, the original capital deficit and the nature of our assets, it is no surprise that we have not met the severe stress test hurdle."

The Co-op Bank was plunged into financial chaos even as it attempted to pursue a takeover of 632 Lloyds Banking Group branches.

Its former chairman, Paul Flowers, brought the bank into disrepute when his drug-taking and sexual activities were exposed by a tabloid newspaper, while his financial competence was questioned by MPs after he failed to correctly state the size of the Co-op Bank's balance sheet.

A spokesman for the Co-op Bank declined to comment.

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