On Tuesday evening, Sky News reported that American private equity firm Cerberus Capital Management LP is currently in “preliminary talks” to rescue a hedge fund-owned cooperative bank in the coming months after the ongoing pandemic turmoil.
Sources revealed that Cerberus is “highly likely to seek a price reduction” during negotiations with the bank’s executive committee and shareholders.
The Cooperative Bank is owned by many US hedge funds, including SilverPoint Capital, Goldenlee, Anchorage Capital, Blue Mountain and Cyrus Capital, and Invesco (NYSE: IVZ), which cumulatively took control of Cooperative Group Ltd. after launching a £700 million rescue agreement in 2017.
Its reputation has been caught up in controversy over the past decade when hedge funds were called after a £1.5 billion hole was discovered in the 2013 account.
Just a year later, Paul Flowers, the former chairman of the bank, was involved in a famous court case that pleaded guilty to possession of crystal meth, cocaine and ketamine.
The dishonorable businessman was banned from the city for life by financial conduct authorities after “accessing premium rate chat lines using company phones.”
Cerberus was one of the bidders involved in the Cooperative Bank’s last formal sales process in 2017, but ultimately chose not to make a transaction.
The company is one of the world’s leading investors in banking and financial services, and already boasts a large stake in Deutsche Bank. Today, Cerberus also acquired Dorel Industries Inc., a Montreal-based toy manufacturer.
In the UK, Cerberus has been criticized for treating so-called “mortgage prisoners,” who had mortgages part of the government’s sales of £13 billion after the 2008 financial crash.
Earlier this month, Cooperative Bank posted a “resilient” third quarter transaction update. Before tax, it fell by £23.5 million from £80.1 million in the same period in 2019.
CEO Nick Slape commented on the Q3 results:
“This is a challenging time for all banks given the uncertain economic outlook and the ongoing base rate, but while we continue to lose as expected in our plans, the results also show that we continue to make significant advances in the transformation.”
Nevertheless, the bank remains firmly in red, losing £68.1 million between January and September this year.
The representative told Sky News on Tuesday that ongoing negotiations cannot be guaranteed at this stage.
“The banks continue to be debated with this financial sponsor, but such discussion is in the preliminary stage.
“The further advances in discussion with this financial sponsor, or the coming of a binding offer, will not ensure that the ultimate shareholders of a bank will find the terms (if any) of the binding offer.”
