Co-op Bank unveils £1.5bn rescue plan
THE Co-operative Bank has unveiled a rescue package to stem a £1.5bn hole in its finances which will see it float on the London Stock Exchange.
The Manchester-based bank will be shored up from three sources: capital from parent company the Co-operative Group, a plan to offer shares in the bank to bondholders, and revenue from the sale of the Co-op’s general insurance business.
It is also planning a cost-saving programme and wants to “deleverage non-core assets and business lines”. Larger corporate customers with complex servicing requirements will be classed as non-core as the bank shifts its focus to small and medium-sized firms.
In a statement it said these measures, known as a ‘bail-in’ will raise £1bn by the end of the year and £500m in 2014.
The bank said under the share offer, or exchange offer, shares in the bank will probably be listed in London in October. It said the offer was “designed to ensure the group and investors in the bank’s subordinated capital securities make a joint contribution to the recapitalisation… and share in the upside of the bank’s transformation.”
But a report in the Daily Telegraph suggested smaller investors would face a big loss on the deal. It said some of £370m of permanent interest bearing shares (PIBS) issued by the Co-op and Britannia Building Society before its takeover, will be made effectively worthless. Around £60m is held by around 7,000 small investors.
In April the Co-op pulled out of its planned deal to buy 630 bank branches from Lloyds. The following month credit ratings agency Moody’s downgraded the bank’s debt rating to junk, raising concerns over possible future losses on commercial property loans, most of which were from the Britannia Building Society which it acquired in 2009.
Chief executive Euan Sutherland said: “We have put in place a detailed and comprehensive solution to meet the current and longer-term capital requirements of the bank. In doing so we have agreed a plan to ensure its future. We have discussed this plan in full with the regulator.
“The Co-operative Group, which clearly regards the Bank as a core part of the group, is providing extra capital. Investors in the bank’s subordinated capital securities are also being asked to support the bank at this crucial time by participating in a wider exchange offer.
“This solution, under which they will own a significant minority stake in the bank, will then allow them to share in the upside of the transformation of the bank. The bank itself has outlined a series of self-help measures that underpin a more targeted strategy for a responsible, community bank focused on its retail and SME customers.”
