NOTat first, every UK bank has struggled over the past decade to deal with the fallout from multibillion-pound taxpayer bailouts, trading scams or devastating IT meltdowns. But few have faced as many scandals, near failures and turnaround efforts as the Co-operative Bank.

During this period, the mid-sized lender nearly collapsed, its former chief executive was charged with drug possession, he was bailed out by a group of hedge funds and he changed bosses six times in nine years .

But the bank, which has its roots in ethical co-operative movements and was established in 1872, survived the fallout from the so-called Crystal Methodist scandal and now enjoys relative stability under its hedge fund owners, who have it seen in its early days. profit in a decade.

Its new chief executive, Nick Slape, insists the bank’s 150th anniversary this year will be a turning point. He says this is an opportunity to look beyond recent scandals and spark new enthusiasm for the UK’s ‘original ethical bank’, which on Thursday announced a profit of £31million for 2021 – his first since 2011. The Co-op Bank has also more than tripled its bonus pot for bankers to £13.3m after what he described as a ‘remarkable year’.

The Slape team dug into the archives to prepare for the November anniversary. The bank traces its origins to the creation in 1872 of the Co-operative Wholesale Society, the organization that would become the Co-operative Group. It was intended to provide financial services to the wider co-operative movement in Britain, in which member-owned businesses worked for the common good.

While the bank has since parted ways with the group, after being taken over by its hedge fund investors in a £700m bailout deal in 2017, and no longer sees itself as an organization owned by its members, it has tried to maintain its ethical roots.

Although hedge funds and private equity investors are often singled out for their goal of maximizing profits and short-term gains, Slape is quick to point out that the bank’s ethical policies are enshrined in its bylaws, to which its shareholders have indeed joined. “We take this seriously: with real board-approved policies and a values ​​and ethics committee monitoring everything, and we report it to UK co-ops,” Slape said, referring to the national industry body that monitors and coordinates on behalf of cooperatives across the country.

Disgraced former Co-op Bank boss Paul Flowers in 2014. Photograph: Lynne Cameron/PA

In 2019, the bank agreed to formally recognize a “union” of customers aimed at protecting its ethical policies, which was formed as a result of the Save Our Bank campaign after the near collapse of the Co-operative Bank in 2013. the year the lender’s financial problems first appeared. enlighten.

That year, a £1.5billion hole was discovered in its accounts after the disastrous 2009 takeover of construction company Britannia. “It led to its own kind of crisis over the next few years,” Slape said, culminating in the first bailout deal that began the bank’s disentanglement from the larger cooperative group.

His problems were compounded when former bank chairman, former Labor councilor and Methodist church minister Paul Flowers, nicknamed the Crystal Methodist, pleaded guilty to possession of cocaine, crystal meth and ketamine in 2014 .

Slape said Flowers’ accusations scared away more customers than the bank’s balance sheet problems ever did. “The only time they really drifted apart was with the former president’s news that was in the tabloids,” he said. “It clearly played a big role in the ethics and values ​​of the bank. It was then that my predecessors saw [customer] wear. Other than that, we have some really loyal customers who have stayed with us. »

This loyalty has been maintained even after hedge funds took full control nearly five years ago. The group, which includes Silver Point Capital, GoldenTree, Anchorage Capital and Cyrus Capital and fund manager Invesco, now collectively owns 85% of the bank, with the rest held by a range of undisclosed institutional investors.

Since then, every managing director of Co-operative Bank has wondered about when its hedge fund owners would plan an exit. They came together in November 2020, when New York-based private equity firm Cerberus Capital Management offered around £270million to buy the lender. However, those talks broke down a month later.

No further offers have been made and Slape, a former Lloyds, Deutsche Bank and Merrill Lynch banker, is targeting future growth. Having already accumulated more capital – the financial cushion that banks need to hold to protect them from risky loans and products on their balance sheets – the Co-operative Bank finally has the opportunity to return money to its shareholders, or, as Slape puts it, “invest in something”.

That could mean buying a portfolio of loans or buying another bank to merge with the lender, which alone has 3.2 million personal customers, 95,000 business customers and 50 branches across the UK.

The Cooperative Bank, supervised by Robert Owen, the instigator of the movement.
The Co-operative Bank watched by Robert Owen, considered the instigator of the movement. Photograph: Don McPhee/The Guardian

Slape’s team made a tentative offer in October, which has since been rejected, to take over banking rival TSB. But with the upgrade in the Co-operative Bank’s credit rating, Moody’s raised the bank’s unsecured debt rating. two notches last month – Slape says he has other opportunities on the horizon.

“We’ve got some big catalysts in place that allow us to think about things that we couldn’t think of before, when we weren’t profitable. So all of those things are positive,” he said.

Moody’s attributed the bank’s upgrade to its “continued progress towards a more sustainable business model” and improved profitability, but added that the latter could remain “very weak” over the next 12 to 18 years. months and that further deterioration could be possible if profitability proves unsustainable beyond 2021.

However, those risks seem unlikely to phase Slape, which is eyeing the idea of ​​an IPO that would get long-time Co-operative Bank hedge fund investors out by 2023.

“We have a strong board, we do all of our reporting completely consistent with what you do as a public company. So it’s not a big change for us,” Slape said. “It’s clearly an option.”