Boss Nick Slape Says Co-op Bank Is Back And Looking For Acquisitions
Strategy: Chief executive Nick Slape considers an IPO in 2023
The Cooperative Bank is back. At least that’s according to CEO Nick Slape, who will prove that “ethical” lending doesn’t mean paving the way to financial ruin — something the bank has come perilously close to in the past.
“We’re actually on track to make a full-year profit,” says Slape. “Basically, I had to get the team to go back and see when the bank last made a profit for the year,” he adds half-jokingly.
To demonstrate the bank’s newfound confidence, 58-year-old Slape is looking for deals. He stunned the city with a surprising takeover bid for rival TSB in October.
The £1bn bid was rejected, but it sent a strong signal to the city: Co-op Bank has not only recovered, it wants to grow, take on bigger rivals and ride the wave of ethical lending, which is now very much in vogue .
By contrast, less than a decade ago, it teetered on the brink of collapse with a £1.5 billion black hole. Coincidentally, it had also recently failed to acquire TSB at the time and withdrew an offer in 2013 due to its own weak finances.
Things would go from bad to worse if then-chairman Reverend Paul Flowers got involved in a sex and drug scandal – revealed by The Mail on Sunday – a huge blow to the bank so proud of its ethical credentials.
Sleepe is eager to get back to the forefront. He believes Co-op needs to add ballast before it can pose a serious threat to the big four: Barclays, HSBC, NatWest and Lloyds Banking Group.
“We are a small, medium-sized bank with no scale,” says Slape, pointing to its £21 billion in deposits. TSB has £36 billion. “You specialize or you need to bulk.”
Without size, it’s impossible to generate enough profit to cover the huge costs of running a bank, he explains. These smaller banks – ‘challengers’ to the big four – are considering mergers to solve this problem.
Last month, private equity firm Carlyle approached Metro Bank about a takeover, but it quickly walked out.
Slape refuses to disclose potential targets, but says he has a few in mind, although he says TSB is still the best choice. “We want it to be anchored in our kind of values and ethics — that’s the key,” he says. Co-op’s ethical policy prohibits serving oil companies, miners and companies that cause climate change. It also excludes tobacco, weapons for repressive regimes and other stockpiles deemed unethical by its customers — a policy since 1992.
Slape is looking for goals owners are already excited about selling — “the viability” of a transaction, he says. ‘If it is a private equity firm that has been there for a few years,’ he suggests.
Pinning down to a specialism can also be an alternative to a complete takeover.
Analysts think TSB is still the price. Sainsbury’s Bank could be a target. The Co-op could also pick out portfolios of mortgages – specialist provider Kensington, for example, was recently put up for sale by its private equity financiers. Could Slape have another crack at TSB? Spanish owner Sabadell tried to unload it before suing earlier this year.
‘We wanted to make it clear that we thought this was an appealing combination’, explains Slape. “We look alike, we have very similar balance sheets.”
So is the Co-opbank back in talks with TSB? “We respect their position on this. We don’t have and don’t talk to them,” he says, as if reading a script.
He has ‘no intention’ to make a higher offer: ‘We have made our position clear.’
The Co-op Bank may seem like an unlikely aggressor — it was also a target like last year when US private equity firm Cerberus made a takeover bid.
But it is one of the oldest challengers. Founded in 1872 as part of the Co-operative Group, it is now owned by a consortium of hedge funds and private funds, including Silver Point Capital, GoldenTree, Anchorage Capital, Bain and JC Flowers. Slape, a seasoned City banker with senior positions at Deutsche Bank, Lehman Brothers and Lloyds behind him, is the fifth CEO in a decade.
The bank was bolstered by a wave of pandemic mortgages fueled by the stamp duty holiday. It was forced to issue a new bond last year to bolster its safety net in case it ever ran into trouble.
He is now entering ‘the next phase’ and has drawn up a new five-year strategy.
“I see 2021 as that turning point. We’ve seen the end of that kind of loss and capital restructuring. It is very important to me that the bank can make a profit.’
He plans to cut costs to less than £300 million a year by 2024 and a plan to scale back the bank’s Manchester headquarters will save around £3 million a year.
He plans to launch “credit repair” loans next year for those with tainted credit histories, expanding the customer base.
But he insists: ‘We are a very conservative bank and we have a very high credit score limit.
“But coming back to our values and ethics, I want to serve people who have a stain on their creditworthiness.”
An IPO could also be in the offing. He says 2023 is “a reasonable time frame: two years of profit behind you.”
But Slape admits, clearly leaving the door wide open for a takeover: ‘Let’s face it, £25-30bn [in assets] will be a small IPO after all.’
Despite TSB’s recent rejection, it could soon be the third time lucky for the Co-op Bank.
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