One of Britain’s biggest building societies has tabled a surprise takeover bid for the Co-operative Bank – a deal that would effectively remutualise one of the country’s most recognisable high street lenders.
Sky News can exclusively reveal that the Coventry Building Society has proposed a tie-up with the Co-operative Bank that would create a financial services powerhouse with close to £90bn in assets.
Talks between the two sides are understood to be progressing, although they are not yet being undertaken on an exclusive basis.
The Coventry’s intervention in the auction of the Co-operative Bank will surprise the industry, since the mutual had not been tipped as a likely bidder.
However, industry insiders said a combination of the two businesses would present a strong cultural and financial fit, while also delivering a huge boost to the cause of financial services mutuals in Britain.
A combined group would be comparable in size to Virgin Money, the London-listed banking group, and would have about five million customers.
The Coventry, which is being advised by the accountancy firm KPMG on the talks, is regarded by peers and regulators as having a credible management team, led by Steve Hughes, its chief executive.
Until last year, the society – the UK’s third-largest by assets – was chaired by Gary Hoffman, the veteran banker who rescued Northern Rock during the 2008 banking crisis.
Image: A combined Coventry-Co-op Bank would be comparable in scale to Virgin Money
Nevertheless, a takeover on the scale of the Co-operative Bank would represent a hugely ambitious move for an organisation which has undertaken few sizeable corporate deals.
Advertisement
One source said the Coventry, which has about two million members, appeared to be “extremely serious” about a deal.
The price under discussion between the Coventry and the Co-operative Bank and their respective advisers was unclear on Wednesday.
Banking analysts have previously touted a price of approximately £800m for the Co-operative Bank.
A spokesman for the mutual said: “AtCoventry Building Society, we remain open to opportunities that may enhance the value and services we offer to our current and future members, but we don’t comment on any public speculation.”
Combining the organisations would give the Coventry a major boost in the personal current account and business banking markets.
It was unclear on Wednesday what the fate of the respective brands would be after any deal.
The Co-operative Bank has also drawn interest from other suitors during an auction which kicked off earlier this year.
Shawbrook Bank tabled a predominantly paper-based offer, while Aldermore Bank withdrew from the process without submitting a formal proposal.
Regulators are being kept closely informed about the talks, with one bank analyst saying a takeover by the Coventry would vindicate the constructive approach taken by the Prudential Regulation Authority towards the Co-operative Bank as it encountered severe turbulence during the last decade.
If the Coventry was successful with a bid, it would effectively deliver the Co-operative Bank back into mutual ownership.
In 2013, the Co-operative Bank’s bid to acquire the branch network which became TSB was left in ruins when the scale of its own crisis emerged.
At the time, it was part of the wider Co-op Group, but was forced to turn to American hedge funds to secure a £1.5bn rescue, even as its former chairman, Paul Flowers, was left humiliated by tabloid revelations about his private life.
The lender then needed a further bailout by investors in 2017, with two major investors – Bain Capital Credit and JC Flowers – subsequently taking a 10% stake in the company.
The remainder of its equity is owned by a syndicate of hedge funds.
Earlier talks about a sale of the Co-operative Bank to Cerberus Capital Management, an often-controversial investor, broke down in December 2020.
In the autumn of 2021, the Co-operative Bank approached Spanish-owned TSB about a merger, but talks failed to progress.
PJT Partners and Fenchurch Advisory Partners are advising the Co-operative Bank on its sale process.
A spokesman for the Co-op Bank declined to comment.
If you ever fly to Washington DC, look out of the window as you land at Dulles Airport – and you might snatch a glimpse of the single biggest story in economics right now.
There below you, you will see scattered around the fields and woods of the local area a set of vast warehouses that might to the untrained eye look like supermarkets or distribution centres. But no: these are in fact data centres – the biggest concentration of data centres anywhere in the world.
For this area surrounding Dulles Airport has more of these buildings, housing computer servers that do the calculations to train and run artificial intelligence (AI), than anywhere else. And since AI accounts for the vast majority of economic growth in the US so far this year, that makes this place an enormous deal.
Down at ground level you can see the hallmarks as you drive around what is known as “data centre alley”. There are enormous power lines everywhere – a reminder that running these plants is an incredibly energy-intensive task.
This tiny area alone, Loudoun County, consumes roughly 4.9 gigawatts of power – more than the entire consumption of Denmark. That number has already tripled in the past six years, and is due to be catapulted ever higher in the coming years.
Inside ‘data centre alley’
We know as much because we have gained rare access into the heart of “data centre alley”, into two sites run by Digital Realty, one of the biggest datacentre companies in the world. It runs servers that power nearly all the major AI and cloud services in the world. If you send a request to one of those models or search engines there’s a good chance you’ve unknowingly used their machines yourself.
Image: Inside a site run by Digital Realty
Their Digital Dulles site, under construction right now, is due to consume up to a gigawatt in power all told, with six substations to help provide that power. Indeed, it consumes about the same amount of power as a large nuclear power plant.
Walking through the site, a series of large warehouses, some already equipped with rows and rows of backup generators, there to ensure the silicon chips whirring away inside never lose power, is a striking experience – a reminder of the physical underpinnings of the AI age. For all that this technology feels weightless, it has enormous physical demands. It entails the construction of these massive concrete buildings, each of which needs enormous amounts of power and water to keep the servers cool.
We were given access inside one of the company’s existing server centres – behind multiple security cordons into rooms only accessible with fingerprint identification. And there we saw the infrastructure necessary to keep those AI chips running. We saw an Nvidia DGX H100 running away, in a server rack capable of sucking in more power than a small village. We saw the cooling pipes running in and out of the building, as well as the ones which feed coolant into the GPUs (graphic processing units) themselves.
Such things underline that to the extent that AI has brainpower, it is provided not out of thin air, but via very physical amenities and infrastructure. And the availability of that infrastructure is one of the main limiting factors for this economic boom in the coming years.
According to economist Jason Furman, once you subtract AI and related technologies, the US economy barely grew at all in the first half of this year. So much is riding on this. But there are some who question whether the US is going to be able to construct power plants quickly enough to fuel this boom.
Please use Chrome browser for a more accessible video player
2:08
Is Trump’s AI plan a ‘tech bro’ manifesto?
For years, American power consumption remained more or less flat. That has changed rapidly in the past couple of years. Now, AI companies have made grand promises about future computing power, but that depends on being able to plug those chips into the grid.
Last week the International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas, warned AI could indeed be a financial bubble.
He said: “There are echoes in the current tech investment surge of the dot-com boom of the late 1990s. It was the internet then… it is AI now. We’re seeing surging valuations, booming investment and strong consumption on the back of solid capital gains. The risk is that with stronger investment and consumption, a tighter monetary policy will be needed to contain price pressures. This is what happened in the late 1990s.”
‘The terrifying thing is…’
For those inside the AI world, this also feels like uncharted territory.
Helen Toner, executive director of Georgetown’s Center for Security and Emerging Technology, and formerly on the OpenAI board, said: “The terrifying thing is: no one knows how much further AI is going to go, and no one really knows how much economic growth is going to come out of it.
“The trends have certainly been that the AI systems we are developing get more and more sophisticated over time, and I don’t see signs of that stopping. I think they’ll keep getting more advanced. But the question of how much productivity growth will that create? How will that compare to the absolutely gobsmacking investments that are being made today?”
Whether it’s a new industrial revolution or a bubble – or both – there’s no denying AI is a massive economic story with massive implications.
For energy. For materials. For jobs. We just don’t know how massive yet.
Pizza Hut is to close 68 restaurants and 11 delivery sites with the loss of more than 1,200 jobs after the company behind its UK venues fell into administration.
The company has said 1,210 workers are being made redundant as part of the closures.
DC London Pie, the firm running Pizza Hut’s restaurants in the UK, appointed administrators from corporate finance firm FTI on Monday.
It comes less than a year after the business bought the chain’s restaurants from insolvency.
On Monday, American hospitality giant Yum! Brands, which owns the global Pizza Hut business, said it had bought the UK restaurant operation in a pre-pack administration deal – a rescue deal that will save 64 sites and secure the future of 1,276 workers.
A spokesperson for Pizza Hut UK confirmed the Yum! deal and said as a result it was “pleased to secure the continuation of 64 sites to safeguard our guest experience and protect the associated jobs.
“Approximately 2,259 team members will transfer to the new Yum! equity business under UK TUPE legislation, including above-restaurant leaders and support teams.”
Nicolas Burquier, Managing Director of Pizza Hut Europe and Canada, called Monday’s agreement a “targeted acquisition” which, he said, “aims to safeguard our guest experience and protect jobs where possible.
“Our immediate priority is operational continuity at the acquired locations and supporting colleagues through the transition.”
The administration came after HMRC filed a winding up petition on Friday against DC London Pie.
DC London Pie was the company formed after Directional Capital, which operated franchises in Sweden and Denmark, snapped up 139 UK restaurants from the previous UK franchisee Heart with Smart Limited in January of this year.
Staff at the Bank of England are on alert for potential job cuts in Threadneedle Street after the governor, Andrew Bailey, warned of tough decisions about the institution’s future cost base.
Sky News has learnt that Mr Bailey informed Bank of England employees in a memo last week that it was taking a detailed look at costs, although it did not specifically refer to the prospect of redundancies.
One source said the memo had been sent while Mr Bailey was attending the International Monetary Fund (IMF) meeting in Washington.
Its precise wording was unclear on Monday, but one source said it had warned of “tough choices” that would need to be made as the bank accelerated its investment in new technology.
They added that managers had been briefed to expect to have to make savings of between 6% and 8% of their operating budgets.
The Bank of England employed 5,810 people at the end of February, of whom just over 5,000 were full-time, according to its annual report.
Those numbers were marginally higher than in the previous year.
The central bank’s budget, funded through a levy, is expected to be £596m in the current financial year.
The workforce figures include the Prudential Regulation Authority, Britain’s main banking regulator, which is set to get a new boss next year when Sam Woods steps down after two terms in the role.
A Bank of England spokesperson declined to comment on the contents of Mr Bailey’s memo.
They also declined to provide details of the timing of any previous rounds of redundancies at the bank.