City analysts react to the Co-operative Group's £132m loss in bank writedown

 
Rebecca Smith
The Co-Op Group also said its financing costs had risen by £74m last year
The Co-Op Group also said its financing costs had risen by £74m last year (Source: Getty)

The Co-operative Group has had a busy morning.

It has reported a £132m loss after declaring its stake in the bank, which it is looking to sell, as being worth nothing.

The group said it had made a "prudent valuation" of its stake, due to the "volatility" caused by the sale of the bank.

Read more: Co-op Group slumps to £132m loss as it writes off 20 per cent bank stake

Here's what analysts thought...

The UK version of Italy's Monte de Paschi

Michael Hewson at CMC Markets, said: "This Co-op saga is turning into the UK version of Italy’s Monte Di Paschi. A basket case bank that seems to stumble from crisis to crisis, however there does seem to be a realisation we could be nearing a turning point in this long running saga."

He said the outcome now rests with one big question: "What sort of bank is likely to rise from the debris and who will buy it?"

Hewson added: "Any new buyer will still have to deal with any legacy issues like the pension deficit, but more importantly they will have to make the model stand out from the rest in order to not only keep its existing client base but also add to it."

Sensible to ditch the massive bank-shaped stain

"It might now be a question of how long the Co-op Bank can continue to exist," said Connor Campbell, financial analyst, at Spreadex.

"Everything around it is toxic: five consecutive years in the red, labelled effectively worthless by the company that owns it, and with a big ol’ pension deficit to boot. It’s hard to see any potential buyer coming forwards, and perhaps just as difficult to imagine anyone chipping in for the group’s capital raising ‘plan B’."

He added: "Given the strength of the Co-op’s other divisions it makes sense that it wants to remove this massive bank-shaped stain from its balance sheet."

Read more: Co-op Bank crosses fingers rescue plans will take shape

Break-up time

John Cronin at Goodbody, said: "My view is that Co-Op Bank is much more likely to be split up rather than sold to a single bidder.

"I think Clydesdale Yorkshire Bank and Virgin Money will be the most interested trade buyers by far, given their thirst for funding and liquidity, and growth. Parts of the Co-Op Bank would be highly attractive to them – in terms of the small business deposits and the retail deposits from both a funding, and, importantly, a liquidity ratio perspective – and certain unencumbered performing loan assets to get balance sheet growth."

Opportunity for new buyers

Ian Gordon at Investec said: "It is entirely possible that an opportunist competitor may yet secure a value accretive deal by 'cherry-picking' assets and likely acquiring them at a substantial discount to book. This, for any would-be 'buyer' is where the opportunity lies."

"It doesn’t exactly bode for the sale of the bank when one of your owners values its holding at precisely zero. However any potential buyers know they will be purchasing a loss making operation so no-one is going to pay hand over fist for it," added Laith Khalaf at Hargreaves Lansdown.

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