Exclusive-Britain's Co-op Bank weighs options including sale, IPO –sources

By Pablo Mayo Cerqueiro, Amy-Jo Crowley and Andres Gonzalez

LONDON (Reuters) - The Co-operative Bank is in the early stages of exploring strategic options, people familiar with the matter told Reuters, in a move that could kickstart long-touted consolidation among Britain's midsized banks.

The bank has been working with advisers at PJT Partners and Fenchurch Advisory to devise ways to create value for its owners, two of the people said. In addition to mergers and acquisitions, the options include a sale of the bank and an initial public offering (IPO), the people said.

The company is not actively soliciting offers while it waits for market conditions to improve, the people said. One pointed to the recent crisis of confidence in financial institutions sparked by the collapse of Silicon Valley Bank.

It may proceed with a sale as soon as this year, though no decision has been made as deliberations remain at a preliminary stage, the people said.

Co-op Bank's profitability and current deposit accounts could attract domestic specialist lenders that rely on more expensive forms of funding such as customer savings, the people said.

Potential suitors include OneSavings Bank, FirstRand's Aldermore, Paragon and private-equity-backed Shawbrook, two of the people said.

Officials for Co-op Bank, Aldermore, OneSavings Bank, Paragon and Shawbrook declined to comment.

Co-op Bank CEO Nick Slape told the Mail on Sunday last month that he was not aware of any takeover interest but noted that things could change as the company develops.

"It goes with progress. If the bank is progressing and performance is better, somebody might want to look at us," he was quoted as saying.

Co-op Bank had an equity value of close to 1.3 billion pounds ($1.61 billion) as of the end of December, based on its latest annual accounts.

It had more than 28 billion pounds of assets on its balance sheet and reported a profit before tax of 132.6 million pounds for 2022.

Hedge funds, including GoldenTree Asset Management and BlueMountain Capital, took control of Co-op Bank from its previous owner the Co-operative Group through a restructuring process in 2017.

The bank last explored a sale to Cerberus Capital Management in 2020 but talks ultimately broke down, according to media reports at that time.

BlueMountain subsequently sold a minority stake in the group to private equity houses JC Flowers & Co and Bain Capital in 2021.

Later that year, Co-op Bank made an offer for domestic rival TSB Group, which was rejected by Spanish parent Banco Sabadell.

With its origins dating back to 1872, Co-op Bank currently provides banking services to about 2.7 million retail customers and more than 93,000 small and medium-sized enterprises, as per its annual report.

Bankers have long expected consolidation among UK's mid-sized lenders as a way for them to compete more effectively with larger players like NatWest and Barclays, but there have been few deals.

However, some market participants think soaring interest rates could create new momentum for M&A, amid fears that customers might move their money elsewhere in search of higher returns or for a greater sense of security.

($1 = 0.8066 pounds)

(Reporting by Pablo Mayo Cerqueiro, Amy-Jo Crowley, Andres Gonzalez and Iain Withers in London; editing by Elisa Martinuzzi and Jane Merriman)