The Co-operative Bank announced this morning it was putting itself up for sale, but analysts have warned it might be tricky to find somebody to snap up the struggling bank.
The bank, which is currently 20 per cent owned by the wider Co-operative Group, had been undertaking an ambitious turnaround plan, after a £1.5bn black hole was found in its accounts in 2013.
The company said in a statement that, while "considerable progress" had been made, factors like rock-bottom interest rates had hampered its efforts to boost its capital organically and it was now looking for a buyer.
The BBC reported TSB, the challenger bank spun out of Lloyds and now owned by Sabadell, might be interested in buying Co-op Bank if the price was right, but a spokesperson declined to comment.
Meanwhile, the FT quoted One Savings Bank chief executive Andy Golding as saying he would "certainly look" at portfolios held by Co-op Bank, but it was less clear whether his firm would be keen to purchase Co-op Bank as a whole.
"The challenge will be whether insurgent financial institutions have the capital raising ability to restore the Co-op's Tier 1 capital requirements to Basel standards or whether a traditional lender will be able to navigate market concentration concerns from the Competition and Markets Authority," Simon French, chief economist at Panmure Gordon, told City A.M.
Carlo Mareels, credit analyst at MUFG, warned: "Today's news is a reckoning with a dire situation but we don’t see the Co-op Bank’s business as being particularly attractive for other banks given its specificities of being a cooperative bank. Perhaps a specialised private equity investor could see more upside in the medium-long term."
Bolstering Co-op Bank's coffers will not be an easy task. The bank advised investors last month it expected its Common Equity Tier 1 capital ratio to dip below 10 per cent, and stay there, for the medium-term.
The Prudential Regulation Authority, which has been keeping a particularly close on the capital situation at the lender ever since 2013, said it "welcomes the actions" announced by the Co-op Bank this morning.
Co-op Bank has the additional problem that it will be touting itself out at the same time RBS is trying to flog Williams & Glyn and its 300-plus branch network, which could dilute the pool of buyers for Co-op.
Taxpayer-backed RBS has been told to ditch the division by the end of this year as part of its £45bn state bailout. It has been reported that both CYBG and Santander have shown interest in buying the brand. The latter is understood to have little current interest in buying Co-op Bank.
The worst case scenario for Co-op Bank would be its winding up, but commentators believe the need to resort to this drastic measure is still some way off.
"I don't think it's likely that Co-op Bank will be wound down," John Cronin, financial analyst at Goodbody, told City A.M. "What's far more likely to happen in my view a sale of the core loan portfolio and a wind-down of the non-core assets."
French added: "At the right price there is always a buyer for the assets."