Bottom Line: Ethical lender must sweeten the deal

 
Tim Wallace
Follow Tim

THE CO-OP Group is losing its ethical shine fast – shortchanging pensioners is never a good look, regardless of the legality and business sense of this part of the bank’s recapitalisation.

It is rapidly becoming clear the only way to reduce the reputational devastation is to let small investors keep more of their money.

Savvy professional investors at hedge funds have already bought into the bank’s debt to try to squeeze a better deal from the lender.

They saw the opportunity when bond prices plunged, and seized the chance to get a bigger share of the bank when it floats.

But for all their skill and experience at negotiating good deals from rescue packages, it will surely be the pensioners and other small investors who put the real pressure on the Co-op Group.

Its reputation as the ethical player in the industry, the bank that cares, has taken a major blow.

When pensioners’ fixed income nest eggs are broken, they will need a really good replacement if the Co-op is not to look like the capitalist caricature its fans want to fight.

The initial plan was for the Co-op Group to shoulder most of the burden of recapitalisation – filling about two-thirds of the capital hole – and to take around 75 per cent of the equity in the newly-floated bank.

Instead that is likely to fall to 66 per cent, or perhaps even 55 per cent.

Hedge funds certainly expect concessions – but angry and distressed pensioners will surely not be happy with anything more than a slim majority of bank shares held by the group.