Hedge Funds Urge Faster Co-op Bank Overhaul

The Co-operative Bank is facing demands from some of its biggest shareholders to accelerate an overhaul of its operations and commercial strategy.

Sky News has learnt that a number of hedge funds which became investors in the Co-op Bank after it was forced into an emergency fundraising last year have expressed concerns about the pace at which a new strategy is being implemented by its chief executive Niall Booker.

External investors now hold more than 75% of the company's shares, with the Co-op Group now owning just over 20%.

Hedge funds said to include GoldenTree Asset Management and Silver Point are understood to believe that the bank's new strategy - which includes cutting the number of products and refocusing on retail and small business customers - is taking too long to put in place.

One shareholder said Mr Booker had recently told it that the attention of banking regulators was making it more difficult to push through reforms.

"There is a sense that management are using regulatory scrutiny as an excuse to sit on their hands," the investor said.

News (Other OTC: NWSAL - news) of the tensions with some shareholders comes the day before the Co-op Bank reports half-year results which analysts expect to show further losses fuelled partly by additional provisions for product mis-selling.

The supposedly ethical bank has already been forced to raise almost £2bn to plug a capital black hole, with losses of £1.3bn for last year expected to continue for at least two further years.

Among the bank's other new shareholders is Hayman Capital Management, whose principal is Kyle Bass, a prominent Wall Street executive who made millions of dollars by predicting the US housing market crisis in 2007.

Last month, the Co-op Bank appointed Derek Weir, a former Barclays (LSE: BARC.L - news) and Royal Bank of Scotland (LSE: RBS.L - news) executive, as an independent board member - the first of two nominees by external shareholders under last November's recapitalisation agreement.

Mr Booker is expected to step down next year, while the Co-op Bank is also seeking a replacement for chairman Richard Pym, who will leave at the end of September.

The Co-op Bank declined to comment.