Co-Op Bank in drive to halt investor worry

Tim Wallace
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THE CO-OPERATIVE Bank hopes to come to a detailed agreement with regulators on its capital requirements in the coming weeks, City A.M. understands.

The troubled bank is keen to end speculation on how it will fill its capital hole as soon as possible, to put an end to weeks of uncertainty over its future and the security of its creditors.

The group’s debt has plunged in price after a six-notch downgrade to a junk rating by credit ratings agency Moody’s, while the departure of its boss Barry Tootell also caused alarm.

It is hoping to plug its capital shortfall by selling off its life and general insurance businesses, as well as running down bad debts at the Britannia Building Society which it acquired in 2009.

The bank has also stopped lending to new business customers and is selling its mortgage processing unit in Plymouth, which was also acquired in the Britannia merger.

But analysts fear the funds raised from those changes may not fill the bank’s capital hole, which could be as large as £1.8bn.

One potential solution could be to bail in bondholders, converting their debt holdings into a new equity instrument.

The group could also bail out the banking arm if need be – though that could have serious repercussions for the larger entity’s ability to finance itself.

However the group hopes to reassure investors that it is unlikely this bail in will happen. Instead it hopes to come to an agreement with regulators on the size of the gap, calming fears.

Only then will it decide on how to fill any remaining gap, if the unit sales have not raised sufficient capital to plug it.