Bank of England urged to step in over Co-op Bank takeover 

MP warns takeover of Co-op Bank may conflict with the bank’s reputation for ethical practices

Bank of England Governor Andrew Bailey has been urged to step into deal talks between US private equity giant Cerberus and the Co-op Bank amid allegations about the turnaround specialist’s “aggressive” behaviour.

Cerberus, which has stakes in major financial institutions including Deutsche Bank, is currently circling the self-styled ethical lender, raising concerns among some MPs as it was accused in 2018 of misleading the Government on a deal to buy £13bn worth of mortgages from bust lender Northern Rock.

The US firm had pledged to offer customers trapped on high interest mortgages a better deal and to transform itself into a ‘challenger bank’ in Britain, but three years later had still not been authorised to offer mortgages to the customers it took on.

Cerberus has always denied the allegations.  

Tory MP Kevin Hollinrake, who co-chairs the All-Party Parliamentary Group on Fair Business Banking, said in an email to Mr Bailey after the takeover talks emerged last week that Co-op Bank’s customers were often attracted to it due to its “reputation of ethical and sustainable practices”, meaning that the sale of the bank to a “vulture fund would be of particular concern”.

“I have extensive experience of the devastating impact vulture funds, and Cerberus in particular, have on their customers,” he argued.

Cerberus denied those allegations.

A takeover of the Manchester-based bank, which has been in recovery mode since 2013 when staff found a £1.5bn hole in its balance sheet, has long been on the cards. After a failed attempt to find a buyer in 2017, when Cerberus also considered a deal, the lender agreed a £700m rescue deal with its US hedge fund owners, four of which were ­involved in its 2013 bailout.

The plan meant it cut historic ties with the wider Co-operative Group.

Cerberus declined to comment on reports of a bid for Co-op Bank.

Responding to Mr Hollinrake’s criticism of the company's business model, a Cerberus spokesperson said: “Cerberus is a responsible, long-term investor and has been fully vetted by UKAR and the FCA in connection with the acquisition of financial institutions. Cerberus has an excellent track record in acquiring and turning around institutions around the world.

“Borrowers are often advantaged by the sale of their loans to Cerberus because we have far more flexibility than the originating lenders to achieve consensual resolutions.  Our commitment has saved UK taxpayers from significant costs, enabled many individuals to remain solvent, and helped many companies not only to stay in business but also to grow, preserving existing jobs and creating new ones.”