Consumer group calls for Co-op Bank rescue reform
Bristol-based professional investor Mark Taber is leading the campaign, and is calling for the PRA and Co-operative Bank management to rethink their initial plans, designed to fill a £1.5bn shortfall in its balance sheet.
Mr Taber said he was representing more than 1600 bondholders, and was working with financial advisers and stockbrokers with a 1000 clients affected by the bank’s plunge into crisis.
An estimated 15,000 investors could be affected by the so-called “haircut”, many of whom are pensioners.
Under its agreement with the PRA to meet current and longer-term capital adequacy requirements, the Co-operative Bank needs to increase its aggregate common equity tier 1 capital by £1bn this year, and by a further £0.5bn in 2014.
On announcing the rescue plan in June, Euan Sutherland, chief executive of The Co-operative Group, said it would allow bondholders to “own a significant minority stake in the bank”, and would subsequently “allow them to share in the upside of the transformation of the bank”.
However, Mr Taber claimed the plan was flawed. He said: “When it first outlined its proposals for bondholders, the Co-op said it would consider ways in which it could pay for financial advice for the affected customers.
“But this is a complex process. Given the work involved for advisers to ensure the swaps are suitable, especially under post-RDR rules, each piece of advice could cost as much as £5000 per bondholder, while many advisers would find it difficult to advise a client that it was a suitable investment.
“Many of these people are elderly, and depend on the bonds for income. Under the bank’s proposals, they would be exchanged for shares which wont pay a dividend for five years.”
He said that a much better solution would be to offer the bondholders a voluntary cash alternative for those who are deemed unsuitable for shares.
Mr Taber added that the Co-operative Group should increase its support for the bank, adding: “It must have been nice for the group to own it’s own bank when times were good, it should now help customers in difficult times.”
A Co-operative Bank spokesman said it was “mindful of the interests of investors”, and was looking at alternative options for them, including providing financial advice at the cost of the bank.
Meanwhile, two Wall Street hedge funds have taken a controlling stake in part of the Co-op’s debt. Aurelius Capital Management and Silver Point Capital are reported to have purchased the stake, potentially giving them influence over the bank’s recovery plans.
The Co-operative Group launched an inquiry into the bank’s merger with the Britannia Building Society on 12 July. Chaired by former Treasury official Sir Christopher Kelly, the inquiry will seek to examine the events leading up to the bank’s slide into crisis, including the collapse of the government’s Project Verde, and the bank’s Moody’s downgrading.