Discussions around the potential transaction are “well-advanced” and “non-binding heads of terms have been agreed”, according to a joint statement issued by the society and the bank.
The lenders are working together to enter into definitive agreements in due course, the statement added, after first entering exclusive merger talks in December 2023.
The statement noted that the merger would “deepen the enlarged group’s existing presence in mortgages and savings and extend the society’s propositions”.
However, the firms added there’s no certainty at this stage that an acquisition of the bank will occur, and the potential transaction “remains subject to the agreement of terms in a manner satisfactory to the parties.”
The potential transaction would also be subject to regulatory approval.
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However, a member vote won’t be required. Coventry Building Society stated: “Having had regard to the requirements of the Building Societies Act 1986, and having taken professional advice, the board has determined that, if the potential transaction were to proceed, a member vote is not required.
“In coming to this decision, the board has also been informed by member surveys and focus groups, which clearly signalled their priorities as maintaining our value proposition and service quality.”
It added the society has consulted with a number of other stakeholders in recent weeks, including regulators and certain ratings agencies “to inform its evaluation of a potential transaction”.
If given the go-ahead, Coventry would still remain a building society. The Co-operative Bank would become a subsidiary of the society and would return to mutual ownership.
‘Enlarged range of products and propositions’
The mutual, which is three times bigger than the bank, said the merger would create a combined group with a pro forma balance sheet of £89bn and allow it to leverage “financial scale” and a “diversified funding base” to offer “strong member value” and “enhance investment”.
Further, it would offer Coventry Building Society an “established position in the personal current account market, extending the society’s product proposition to meet more of members’ daily needs”, broaden its channels and distribution capabilities and introduce a business savings and current account proposition into the mutual’s offering.
It currently has three million customers.
The society said it would seek to integrate the bank “gradually over several years”, and customers would benefit from an “enlarged range of products and propositions on offer”.
“It is Coventry Building Society’s current intention that eligible bank customers would become society members over a period of time post-completion.”
No change for existing customers yet
For now, there’s no change for existing customers of either brand.
“You’ll continue to experience the same great value and service you have today. Your savings or mortgage accounts stay the same, and you’ll continue to use all our existing services – branches, telephony, online and our new mobile app – as normal.
“If we do take ownership of The Co-operative Bank, we’ll begin the ‘behind the scenes’ work that means we can provide one joined up service in the future,” Coventry added.
Steve Hughes, Coventry Building Society’s CEO, said: “This is an exciting moment for the society. We have a very successful history, and we believe this could be the basis of a very successful future – with membership, great value and great service at its heart.”
“The Co-operative Bank is a financially stable, profitable organisation with a shared heritage and products and services that complement our own.
“Its customers, colleagues, branches, mortgages and savings balances, and the additional products and services it provides, will make us stronger and enable us to continue offering the value and service that matters to members and customers alike. We’re confident that we have the people, capability and the financial strength to bring both organisations together successfully over a number of years.”
Similar moves by other banking brands
The proposed tie-up comes just weeks after Nationwide confirmed it’s in talks to acquire Virgin Money. Again, while there’s no change for existing customers, the potential move doesn’t require a member vote. However, savers are urged to be mindful of the Financial Services Compensation Scheme (FSCS).
Under the FSCS, the first £85,000 per UK-regulated financial institution is protected, meaning you’d get your savings back up to this limit if the worst were to happen (£170,000 for joint account holders).
Here, a statement from the lenders noted that Virgin Money would continue to operate as a “separate legal entity within the Nationwide group, with a separate board of directors and a separate banking licence”.
Coventry said: “To begin with, The Co-operative Bank and Coventry Building Society will retain their banking licences, and you will have FSCS protection as a customer of each organisation as you do now. We expect this to be the case for several years.”
Meanwhile, Tesco is reportedly mulling the sale of its banking arm.
Related: Co-operative Bank agrees to buy Sainsbury’s Bank mortgage portfolio