Coventry Building Society races to finalise £780m Co-operative Bank deal

The Coventry Building Society is racing to finalise a £780m takeover of the Co-operative Bank that would catapult the mutual into the ranks of Britain’s biggest high street lenders.

Sky News has learnt that the Coventry is trying to put the finishing touches to a definitive deal within the next few days to avoid it falling under the auspices of the UK Takeover Code.

Sources said the two sides were keen to avoid additional financial and regulatory complexities that could arise if the transaction became subject to the code.

The Coventry and the Co-operative Bank were now hopeful of ironing out residual issues, including in relation to a number of balance sheet provisions, in the coming days.

Talks have been taking place between them for months, with an announcement in April that they had signed non-binding heads of terms.

If completed, the deal will effectively remutualise the Co-operative Bank more than a decade after it first came close to collapse and had to be bailed out by American hedge funds.

The tie-up will create an organisation with millions of customers and close to £90bn in assets.

Britain’s third-largest building society will, however, not offer its 2m members a vote on the Co-operative Bank takeover, in line with Nationwide’s decision to refuse its 17m members a say on its proposed £3bn acquisition of Virgin Money.

By coincidence, the combined Coventry and Co-operative Bank would be comparable in size to a standalone Virgin Money, with about 5m customers across Britain.

Combining the organisations would give the Coventry a major boost in the personal current account and business banking markets.

In 2013, the Co-operative Bank’s bid to acquire the branch network which became TSB was left in ruins when the scale of its own crisis emerged.

At the time, it was part of the wider Co-op Group, but was forced to turn to American hedge funds to secure a £1.5bn rescue, even as its former chairman, Paul Flowers, was left humiliated by tabloid revelations about his private life.

The lender then needed a further bailout by investors in 2017, with two major investors – Bain Capital Credit and JC Flowers – subsequently taking a 10% stake in the company.

In the autumn of 2021, the Co-operative Bank approached Spanish-owned TSB about a merger, but talks failed to progress.

PJT Partners and Fenchurch Advisory Partners are advising the Co-operative Bank on its sale talks.

JP Morgan and KPMG are advising the Coventry.

The Coventry and Co-operative Bank both declined to comment.