Potential buyers for the Co-op Bank might be put off by the sizeable bill they will face for its pension scheme.
The bank, which is currently 20 per cent owned by the wider Co-operative Group, announced last month that it was putting itself up for sale. Prior to this, the challenger had been embarking on an ambitious turnaround plan, after a £1.5bn black hole was discovered in its accounts in 2013.
The Co-operative Group's accounts show its Pace pension plan had a surplus of £1.3bn on 2 July 2016. However, sources told the Sunday Times even a conservative buyout figure for the scheme would be a deficit between £1.5bn and £2bn. Because of an agreement the lender struck in 2014, Co-op Bank would need to cough up 20 per cent – or £400m – of this.
A source at another challenger bank told City A.M. any buyer would need to "look at the impact of the pension scheme and then look at if you could plug that black hole yourself", while another added the pension was "one of a number of very sizeable negative features".
However, a Co-op Bank spokesperson said the figure in the Sunday newspaper was "fabricated".
A source close to the Pace pension scheme negotiations negotiations added: "The trustee, the Co-op group and the Co-op bank are working closely together with members' interests at the forefront of their deliberations. These interests remain well protected in a scheme that is relatively well funded."
The Co-op Bank's annual report for 2015 notes the latest figure for the Pace pension shortfall, which was calculated on 5 April 2015, as £304m. If the lender was on the hook for a fifth on this, its bill would be closer to £61m.