One of Britain’s biggest lenders to small businesses is planning a £3.5bn merger on the Co-operative Bank, according to a report.
Shawbrook Group has approached the owners of the Co-operative Bank in recent weeks with proposals for a stock-based combination of the two firms, it is understood.
In what would be one of the most significant UK deals for the sector since the 2008 financial crisis, the offer comprises of roughly 29% that values the Co-operative Bank, which has 2.7 million retail customers, at £800m, Sky News reported.
Shawbrook has hired investment bankers at Barclays to advise it on its interest.
Together, Shawbrook and the Co-operative Bank reported underlying profit last year of nearly £375m.
The merger would herald long-predicted consolidation amid a period of turbulence with surging interest rates and the crisis precipitated by the collapse of Silicon Valley Bank in the US and the emergency takeover of Credit Suisse by Swiss rival UBS.
Other lenders are also expected to explore formal offers for the Co-operative Bank.
OneSavings Bank has been considererd as a forerunner, although a recent alert that profits would be hit by customers racing to secure new fixed-rate deals has caused some City analysts to question whether it will bid.
Aldermore, Nationwide and Paragon Bank have all also been named as prospective bidders.
Barclays’s role as an adviser to Shawbrook is likely to rule out the major high street bank as a bidder for the Co-operative Bank in its own right.
In the autumn of 2021, the Co-operative Bank approached Spanish-owned TSB about a merger, but talks failed to progress.
Earlier this year, reports emerged that the Co-operative Bank was exploring a sale, having hired PJT Partners and Fenchurch Advisory.
The Co-operative Bank, originally founded in 1872 and now led by chief executive Nick Slape, has since steadily grown its returns, making profit before tax in 2022 of £132.6m on deposits of £20bn.
The Co-Operative Bank and Shawbrook declined to comment.