Downgrade on doubts around Co-op’s rescue

 
Tim Wallace
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THE CO-OP Bank was hit by another downgrade from Moody’s yesterday, as the credit ratings agency warned the bail-in rescue deal faces risks.

It follows a six-notch downgrade last month when fears grew about the bank’s capital levels.

A £1.5bn recapitalisation plan was announced on Monday, and includes a £500m from junior bondholders who will lose around 30 per cent of their investments.

It came as Lloyds’ bosses told MPs

they knew last year the Co-op Bank was running into trouble with its capital.

“The Co-operative Bank may only return to being a fully solvent, operational entity through a substantial recapitalisation, which as proposed would involve a bail-in of junior creditors, together with a very significant restructuring of the bank’s operations,” said Moody’s.

And the agency warned the planned bail-in may not be big enough, as the voluntary move may not persuade enough bondholders to take part.

“The downgrades of the bank’s subordinated instruments are based on Moody’s expectations investors in these instruments will only be able to recover between 35 per cent and 65 per cent of their investment,” the agency said.

Meanwhile Lloyds’ bosses said they feared a capital hole was becoming evident at least six months ago.

“The reason we had doubts at that moment in time of their capability, in December 2012, of actually executing transaction, is we were then given the revised plan from Co-op Group, their combined plan of the Co-op Bank and our TSB Bank,” said chief executive Antonio Horta Osorio. “In the analysis of that information it was clear that, indirectly, there was a shortfall of capital.”

PROFILE: CO-OP GROUP’S GENERAL COUNSEL
AS it prepares to negotiate its way through the planned £1.5bn rescue plan for its banking arm, the Co-operative Group has brought Allen & Overy veteran Alistair Asher (pictured below) on board as general counsel. In his newly created role, Asher will take a seat on the group’s executive committee as well as heading up its legal services arm – one of the first non-law firms to be granted a licence to practice since the Legal Services Act last year.

Asher has been a partner at Allen & Overy for more than 34 years, including 26 as partner, and currently serves as head of the firm’s global financial institutions practice.

His key clients over his years at the firm have included Lloyds Banking Group, Nationwide, Legal & General, Thomas Cook and WH Smith – and Britannia Building Society, whose merger with the Co-op that was blamed this week for the mutual’s woes.

As general counsel he is likely to be at the centre of negotiations as the banking arm prepares to be listed on the London market in October, as well as heading up the rapidly expanding Co-operative Legal Services.

Last year the group said it was aiming to hire 3,000 people to grow its legal arm as part of a push to become the UK’s biggest provider of consumer legal services over the next decade.

Allen & Overy, from which Asher will retire on 1 July, is leading for the Co-op on its restructuring plans, with finance partner Mark Sterling heading up a team from the firm’s building societies and mutuals, corporate finance and debt capital markets practices, as well as tax, regulatory, insurance and pension lawyers.