Co-op gets tough with an ultimatum to investors

Tim Wallace
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SMALL investors in the Co-op bank must agree to take losses on their bonds or risk the bank being closed or sold, executives said yesterday as they revealed group pre-tax losses of £559m for the first half of the year.

Much of those losses came from the bank – the trading group business made a profit of £150m in the six-month period, while the bank lost £709m.

It will now take four years to get the bank back to profitability, according to the unit’s boss Niall Booker, who compared its problems to those of Lloyds and RBS five years ago.

But the executives said that will only happen if investors back the recapitalisation plan. Chief executive Euan Sutherland said “there is no plan b,” and that the £1bn he is injecting into the troubled bank represents “the full financial stretch of the group.”

The banking arm has a £1.5bn capital hole, and the group is asking investors to stump up £500m of that.

They will be asked to swap their bonds in exchange for new bonds and shares.

They can expect to lose at least 30 per cent of the face value of their bonds.

“We have assessed all the available options and we believe the capital action plan will prevent the more severe adverse consequences for all stakeholders which might occur in the absence of this plan and our support of it,” said Sutherland.

However, the full plan will not be detailed until 29 October, when a prospectus on the exchange is issued.

“It is disgraceful that Co-operative Bank has not given any more detail about its exchange offer a full 10 weeks on from the 17 June announcement that they are mindful of retail investors and will look at more suitable alternative,” said fixed income investors and bondholder campaigner Mark Taber.

“Also the Co-op has stated the Bank ‘will not be profitable for some years’ so presumably no prospect of a dividend on the ordinary shares they will be offering pensioners in exchange for their bonds for some years either.

So how can their offer as announced to date be suitable for their pensioner investors?”