CO-OP Bank could be turned around more rapidly if bondholders were converted en masse into shareholders, according to a letter published yesterday by group of institutional bondholders.
A group led by boutique investment bank Moelis and holding 43 per cent of the bank’s lower tier two bonds is pushing for a greater amount of equity in the bank, which is set to float on the stock market as part of the deal.
The group, calling itself LT2, has written to the bank to ask for more equity and so more control over the bank at the end of the rescue.
“Substantially all the required £1.5bn would be raised by converting the bank’s subordinated bonds and preferred stock into bank common stock,” the investor group wrote.
“The LT2 group believes that, after giving effect to that conversion, any capital shortfall would be small and could be readily raised during 2013 through cash investment, whether by existing holders of bank securities, the bank’s parent, or outside third parties.”
Its own members would be interested in providing that extra, LT2 said.
The proposals differ from the plan the Co-op Bank is currently working on, which would see the Co-op put in £1bn and bondholders £500m, in exchange for a mix of group bonds and bank shares.
“We are uncertain of the structure, deliverability and conditionality of what is proposed by Moelis, but we are willing to engage with them to investigate further,” the Co-op Bank said in a statement. “To that end, we last week offered to engage with them and look forward to doing so.”