One of Britain’s biggest challenger banks has abandoned plans to bid for the Co-operative Bank after its owner’s chief executive quit unexpectedly.

Sky News understands that Aldermore Group, which had hired advisers to work on a takeover of its rival mid-sized lender, opted not to submit an offer ahead of a deadline earlier this month.

Its withdrawal will come as a surprise, and will raise questions about its future strategy under Steven Cooper, its respected chief executive.

Its decision leaves Shawbrook as the only known bidder for the Co-operative Bank, which has been put up for sale by the syndicate of financial investors which own it.

Analysts had named Aldermore as the most logical strategic buyer of the Co-operative Bank, although City sources said on Wednesday that a number of other parties remained interested in bidding.

Aldermore’s plans are said to have been derailed by a leadership shake-up at FirstRand, the South African banking group which owns it.

Other lenders cited as potential bidders, including Paragon Banking Group and OneSavings Bank – are also yet to table offers.

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Shawbrook, another medium-sized British bank, has approached the Co-operative Bank’s advisers with a £3.5bn merger proposal.

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That largely consists of Shawbrook shares, however, and it was unclear how attractive that offer would be to Co-op Bank shareholders, according to banking sources.

A successful sale of the formerly mutually owned Co-op Bank would come as a relief to regulators which have twice had to play roles in rescues over the last decade.

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.

It was forced to turn to American hedge funds to secure a £1.5bn rescue, while 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.

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The remainder of its equity is owned by a syndicate of hedge funds, and the bank’s performance has been radically improved under its current management team.

Earlier talks about a sale of the Co-operative Bank to Cerberus Capital Management, an often-controversial investor, broke down in December 2020.

The auction is continuing amid turbulence in the wider sector, with Metro Bank having to turn to debt and equity markets in recent weeks to raise emergency funding.

PJT Partners and Fenchurch Advisory Partners are advising on the Co-operative Bank sale.

Aldermore and the Co-operative Bank declined to comment.

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