‎Co-operative by name resistant by nature, greener pastures await for the SFO and a tycoon's staple deal

 
Mark Kleinman
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Co-operative Group Difficulties Continue After Lord Myners Resigns
In the search for a long-term fix to the Co-op Bank's perpetual balance sheet crisis, the endgame is in sight (Source: Getty)

Perhaps the clue isn't in the name after all. A pack of hedge funds trying to thrash out a deal with the Co-op Group over the retirement scheme of 90,000 pensioners‎ certainly haven't been overwhelmed by a spirit of mutual benevolence.

Yet in the search for a long-term fix to the Co-op Bank's perpetual balance sheet crisis, the endgame is in sight.

The maths are simple - either £700m of top-quality capital is forthcoming through a combination of debt write-offs and ‎new equity, giving it another stab at a standalone future, or it becomes a test-case for the Bank of England's resolution regime.

Read more: Co-op Bank says it's in "advanced discussions" over capital raise

Most of the hurdles have been cleared. Sources say that a meeting last week between the bondholders - hedge funds including Silver Point and GoldenTree Asset Management - and the Prudential Regulation Authority‎ produced an outline agreement for roughly £240m of new equity to be injected into the Co-op Bank.

A liability management exercise, which effectively wipes out the lender's tier-two bondholders‎, accounts for the rest of the capital gap.

The biggest obstacle has appeared in unexpected form.

Sources tell me that a month ago, the Co-op Group, Bank and their pension trustees agreed a new long-term funding plan in order to achieve the separation of the existing Pace scheme into two separate schemes.

The plan would involve ‎putting cash of about £250m into the Bank scheme. Nothing less, the Group declared, would be sufficient to gain its support, and that of the trustees, for ending the reciprocal "last man standing" arrangement which guarantees the Group's support for the scheme if the Bank goes bust (and vice versa).

For their part, the hedge funds say they will provide more than £200m in guarantees to the scheme, including‎ a £62.5 cash sum spread over five years.

The Group's resistance is born from bitter experience. It has already pumped hundreds of millions of pounds into the Bank to keep it afloat during earlier rescue fundraisings, and its patience has run out. The argument goes that its obligations to its pensioners and members make it unreasonable to provide further financial support.

That's true, but its stance increases the danger‎ that the Group will be cast as the villain whose intransigence causes the Bank to fail in its efforts to secure another bailout.

A compromise surely looms‎. If not, it remains to be seen whether the bondholders will still be standing, or whether their big gamble from 2013 has failed. We won't have to wait long to find out.

Read more: Co-op Group could reduce stake in Co-op Bank to less than five per cent

Greener pastures await

No prizes for guessing the City's biggest story this week: the Serious Fraud Office's decision to charge John Varley, the former Barclays‎ chief executive, over its Qatar fundraisings in 2008 that enabled it to stay out of state hands.

Now here's the understatement of the week: it's the most important prosecution ever brought by the UK white-collar crime agency.

True, the stakes may have been modestly lowered by the impotence of Theresa May's return to Downing Street; her pledge to abolish the SFO has always been a personal crusade supported by no explicit evidence. We can assume it's as dead as many of her other manifesto commitments.

Yet the decision to charge one of Britain's biggest banks and four of its former top brass for moves to avert a state bailout represents an existential move regardless of the Prime Minister's personal fortunes.

It's impossible to second-guess how it will turn out, so here's the safest bet of all: that by the time the case reaches a conclusion, the SFO's director, David Green, will be safely ensconced in a lucrative private sector job - watching the wheels of justice turn from afar.

‎A tycoon's staple deal?

Why break the habit of a lifetime? The move by Li Ka-shing, the Asian tycoon most often compared to Warren Buffett, to buy Holland & Barrett, bears the usual hallmarks of his consumer-facing acquisitions: an under-managed asset with plenty of potential to grow in China.

There may be a catch, in the form of stiff competition. I'm told that Sycamore‎ Partners, which was reported yesterday to be close to buying the office supplies chain Staples for $6bn, has also tabled a bid for Holland & Barrett. Let battle commence!

Read more: SFO charges four former Barclays bankers including ex-CEO John Varley

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