Co-op Bank recapitalisation plans set to be torn up

A statement from the bank today (Monday 21 October), revealed that the bank was “engaging with different bondholder constituencies and seeking to balance the requirements and expectations of these parties”.

The statement added that many elements of the beleaguered bank’s recapitalisation plan would subsequently be “materially different” to the original outline, announced in June, and designed to raise £500m towards the bank’s capital shortfall of £1.5bn by swapping retail bond holdings into shares in a restructured bank.

The original proposals would have seen the Co-Operative Group contribute £1bn to the recapitalisation plans, and in so doing would retain a 70 per cent stake in the bank.

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The Co-operative Bank would not comment further on the plans; it is understood however that the resistance of US-based hedge funds Aurelius Capital Management and Silver Point Capital to the recapitalisation has prevailed, with the Co-op now having to reconsider how it will meet the £1.5bn capital shortfall.

A revised plan could see institutional bondholders, including hedge funds, insurers and pension funds shoulder the funding of the plan, and collectively become majority shareholders. This would also dilute the Co-operative Group’s stake in the bank to less than 50 per cent.

A statement by the Co-operative Group said: “The board of the group remains committed to delivering a solution that provides both necessary capital for the bank, while preserving its ethical focus, and an acceptable outcome for bondholders, including private investors.”

The abandoning of the Co-op’s original recapitalisation plan, which could see thousands of pensioners lose significant amounts of retirement income through the bonds, was given a cautious welcome by bondholder spokesman Mark Taber.

He said: “If this is true it’s very similar to our alternative proposals, and promising for thousands of bondholders, apart from the fact that the Co-operative Group would have to relinquish a controlling stake in the bank. However there is still a lot of work to do.”

The bank is also reported to be considering introducing a hardship fund for retail investors put in financial difficulty by the debt restructure.

Meanwhile, the bank announced this morning that it was increasing its provision for redress over the mis-selling of payment protection insurance would rise by between £100m-£105m higher than its original estimate of £269m.