SMALL investors in the troubled Co-op Bank could be given cash in return for their bonds instead of a complex mix of new debt instruments and shares, City A.M. understands.
The lender has a £1.5bn capital hole which will be filled in part by a £500m contribution from junior bondholders, while the Co-op Group will pay the rest.
The plan deals a major blow to thousands of retail investors – often pensioners – who risk losing around 30 per cent of their investments, as well as seeing the fixed income from their savings hit hard.
But instead of sticking with the original plan of swapping their bonds into new bonds in the Co-op Group and shares in a newly-floated Co-op Bank, the group is considering offering the investors cash.
Such a move would bring two benefits – firstly it could please the investors who have hit out hard at the original plan.
It will also make offering financial advice easier. The group had planned to give free advice to every investor, an expensive and complex process if the original deal goes ahead.
But by replacing the different instruments with cash, the process is made simpler.
“Logically the group almost has to come to this conclusion – for a lot of the pensioners who rely on the interest income from these bonds, it is useless to offer them shares which are unlikely to pay a dividend for years,” Mark Taber, whose campaign for a better deal is backed by around 1,500 small bondholders,” told City A.M.
“But if any cash offer is too derisory, it would still be very unpopular.”
Meanwhile Taber has written to City regulator the Financial Conduct Authority to complain about the bank’s behaviour.
“You must ensure that the bank is not allowed to inflict losses on the affected pensioners,” wrote Taber, accusing the Co-op of making misleading statements to investors.
The FCA is expected to reply to the campaigners by the end of this week.