3rd Dec

Absolution or Hobson’s Choice? Bondholders Back Co-op Bank's Plans


Relief at Co-op Bank as 99.9% of bondholders vote to approve recapitalisation plan.

Despite initial fury and opposition from Co-operative Bank’s bondholders (The Only Way is Ethics – Co-opBank Bond Holders Fight ‘Bail-In’ Retail Bond Expert Aug 27th and Bond Holder Fury as Co-op’s Sutherland Insists There is ‘No Plan B’ Sept 21st) it is reported that ‘99.9%’ of investors in preference shares and two tranches of its junior debt have now approved plans for the £1.5 billion  recapitalisation of the troubled lender. 

Voting took place last month and if approved at a bondholders’ meeting on 11th December the move will see £1 billion injected into the business as bondholders exchange existing debt for new bonds as well as shares in the Bank. 

A joint statement from Co-operative Group and Co-operative Banks said: ‘We are now highly confident that our £1.5 billion recapitalisation plan for The Co-operative Bank can be achieved.’ 

Recapitalisation Plan

‘The Co-operative Group and Co-operative Bank are delighted at the overwhelming levels of support for the liability management exercise at this critical juncture, and we would like to thank all our bondholders and preference share holders for backing the recapitalisation plan.' 

Mark Taber, speaking on behalf of an action group comprised of Co-op Bank retail investors said ‘All the hard work since the offer was announced on 4th November has paid off and this should secure the best outcome for retail investors under the circumstances and is a big step towards stabilising and securing a successful future for Co-op Bank under its new management and ownership and governance structures.’ 

Relinquish Control

The plans will see Co-operative Group lose control of the bank to its bondholders and retain just a 30% stake.

Institutional investors will take control of the rest of the bank after they are asked to swap their bonds for shares in the lender. 

The exchange has proved controversial as it hands a stake in the bank to several US hedge funds; Perry Capital recently announced that it had bought a stake in the business from rival Aurelius Capital management. 

Government Enquiry

Retail investors will be issued new bonds which will have a lower rate of return and will not be permanent. The £1.5 billion hole in the balance sheet of the once high-flying bank is widely blamed on the merger of the Co-op’s banking arm with Britannia Building Society, and the Government has launched its own enquiry into the failures at the bank that led to the scandal. 

The financial and moral decline of the nation’s once favourite ethical bank is embodied by the fact that disgraced Co-op Bank’s former chairman Rev Paul Flowers recently missed out on an inglorious hat-trick purely on the grounds that there are no allegations of ‘rock ‘n’ roll’ against him.  

The Bank has admitted that Rev Flowers’ less than ecumenical behaviour has caused it reputational damage and that it had recently experienced an egress of customers.   

Mr Bond would like to hear from you if, as part of the 99.9%, you were only too pleased to prevent the Bank putting itself into ‘resolution’ by accepting a lower return on the income investments you have been enjoying; or do you consider this the least worst scenario?                 

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