The struggling Co-operative Bank has drafted in a former finance chief of the specialist lender Shawbrook to play a key role in the revival plan drawn up by its hedge fund backers.
Sky News has learnt that Tom Wood, who left Shawbrook at the end of last year, has been appointed as the Co-op Bank’s chief restructuring officer – a new executive position which reflects the significant operational turnaround which awaits the lender’s shareholders.
Mr Wood also worked at Northern Rock, the Skipton Building Society and NBNK Investments, a vehicle set up to acquire assets from banks bailed out during the 2008 financial crisis but which was eventually wound up after losing out in the auction of more than 600 Lloyds Banking Group branches.
The Co-op Bank won that auction but had to abort the deal following the emergence of a £1.5bn black hole on its balance sheet.
Its initial financial restructuring in 2013 led to US hedge funds taking a majority stake in the business – with their shareholding now set to be increased to close to 100% after the latest £700m rescue deal.
The Co-op Bank has now secured sufficient support for the proposed deal, according to a statement on Friday, although it will not be formally completed until September.
Mr Wood’s broad banking experience will be a “valuable asset” to the Co-op Bank as it implements the next phase of its transformation, according to one source.
He also served as Shawbrook’s acting chief executive for a period of several months.
News of Mr Wood’s appointment comes days after Sky News revealed that the City advisers hired to find a buyer for the Co-op Bank are in line for a £15m payday despite the struggling lender turning to its existing investors to bail it out.
Controversially, Bank of America Merrill Lynch and UBS will be awarded a “success fee” despite the fact that they did not secure a sale of the troubled company to a third party.
The quintet of hedge funds which have struck a deal to rescue the Co-op Bank faced the alternative of seeing their previous investments being wiped out, and the Bank of England moving in to wind up the lender.
Efforts to find a buyer for the whole of the Co-op Bank failed to elicit a compelling offer from Virgin Money, CYBG or any of the other banks or private equity firms which considered doing so.
Last month’s restructuring announcement provided some reassurance to four million Co-op Bank customers who have faced a protracted period of uncertainty over its future as an independent business.
Existing bondholders, including retail investors, will nevertheless face the pain of seeing a substantial reduction in the value of their holdings.
Under the hedge fund consortium’s plans, they will pay £250m for new shares and swap £443m of existing debt for equity.
In addition, £100m will be invested in the Co-op Bank’s new standalone pension scheme following tensions over the division of the £10bn scheme shared with the Co-op Group.
The current arrangement includes a “last man standing” provision which means that each side is liable for the whole scheme if the other Co-op entity goes bust.
If the restructuring is completed, the Co-op Group – once the sole shareholder in the lender that carries its name – will see its stake in the Co-op Bank reduced to 1%.
Despite the reduction in the mutual’s holding, the Bank has stressed that its commitment to “values and ethics” will be safeguarded.
It added that it saw the potential to pay a dividend to shareholders in 2021 if its business plan was delivered over the coming years.
The Co-op Bank has been hit by a string of legacy issues, as well as the challenge posed by ultra-low interest rates, since its original £1.5bn bailout.
The lender announced an annual loss this year of £477m, taking its total losses since its rescue in 2013 to well over £2.5bn.
The Co-op Bank’s balance sheet ballooned following a disastrous merger with the Britannia Building Society.
Its former chairman, Paul Flowers, brought it into disrepute when his drug-taking and sexual proclivities were exposed by a tabloid newspaper, while his financial competence was questioned by MPs.
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