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Revealed: What retail investors will get for Co-op shares

Co-operative Bank has this morning confirmed the payouts retail investors can expect for their preference shares as part of a finalised re-capitalisation plan that will see its mutual parent cede a majority 70 per cent holding.

According to a detailed announcement published this morning (4 November), share and bond holders will receive payouts or share conversions based on where they sit within the bank’s capital structure.

Holders of 9.25 per cent preference shares and 13 per cent perpetual subordinated bonds - which include a number of retail investors - are to be offered a choice between a ‘final repayment note’ that will pay a lower rate of interest per year with the principal sum repaid at maturity, or an ‘instalment repayment note’ that will repay just the principal sum in equal annual installments.

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According to the bank, the final repayment notes will pay a fixed rate of 11 per cent per annum with the principal repaid at maturity in year 12, while the instalment note will simply pay the principal sum over 12 years. The total payout will be £129m.

Sharesholders classified as ‘lower tier 2’ holders, are to be offered a combination of ordinary shares totalling 45 per cent of the bank’s equity and £100m in new tier 2 notes. They will also be offered the opportunity to subscribe for an additional 25 per cent of equity for £125m.

Holders of 5.5555 per cent ‘perpetual subordinated bonds’ to be offered up to £106m in new tier 2 notes.

The payouts are part of the banks revised recapitalisation plans, which will see Co-operative Group’s shareholding in the bank drop to 30 per cent, with the remainder being taken up by a range of investors including activist hedge funds that rejected an initial proposal.

Co-operative Group’s total contribution to the deal, which will plug a capital shortfall of £1.5bn, will be £462m, including the £129m retail investor “solution”.

The bank has also confirmed its new structure, which will see it rationalise its product line as part of a more concentrated strategy focusing on “retail and small and medium sized business customers”.

It will also seek to reduce costs substantially, primarily by reducing the number of branches by 15 per cent. Co-op said this will not affect its “excellent customer service levels” and will be offset by investment “to significantly enhance its digital and self-service channels”.