Co-op Group agrees bank rescue – but will have only 30% stake

THE Co-operative Group said it had agreed a rescue deal for the troubled Co-op Bank, but will own a minority stake of 30% in the lender when it is floated, after being forced to revise its original plans.

In a short video message after a dramatic day in the history of the group, chief executive Euan Sutherland said the last few months had been “hugely difficult”.

Despite stressing in June, when unveiling a £1.5bn turnaround plan for the bank, that there was “no plan B”, the group has been forced into something of chastening U-turn, after a revolt by bondholders, who would have born the brunt of the restructuring.

The Co-op’s original strategy involved raising £500m from asset sales, £500m from the Co-op Group and by forcing £500m of losses on the £1.3bn of subordinated bondholders.

They were not willing to shoulder these losses and have have won their argument for a debt-for-equity swap. While some of the bonds are held by small investors it is understood the opposition has been led by the US hedge funds, Silver Point and Aurelius, advised by investment bank Moelis.

Mr Sutherland said: “This bank will remain the Co-operative Bank. We’re embedding the Co-operative principles into the constitution of the bank to guarantee this.”

He said the group had reached an agreement in principle that saves the bank after months of negotiations. He went on to outline the group’s three key priorities during the talks.

He said: “Firstly to ensure that we didn’t turn to the taxpayer to bail out the bank. We haven’t. This is the first bank to be rescued and to survive as a stand alone entity without taxpayer money. Secondly, that as a group the Co-operative retains effective control of the bank which I’m delighted to say that we have, securing 30% of the equity which makes us the single largest shareholder.

“And that most importantly we had to build a fair and attractive proposal for small investors, the hard working families across Britain that’ve invested in the Co-operative Bank and I’m confident we’ve done this and we’ll be able to announce the details of all these measures in the coming days.”