Bondholders slam Co-op for keeping them in the dark over exchange offer


Retail investors in the Co-operative Bank have heavily criticised it for keeping them in the dark about the terms of a controversial rescue deal that will see them forced to exchange their bonds for equity in the bank.

Earlier this week, the bank published its half-year results in which it posted a £709m loss, driven primarily by £496m of loan writedowns and £61m related to further consumer redress payments, including PPI misselling. It compares to losses of £57m for the same period in 2012.

The results also reveal the bank is pressing ahead with plans to address its £1.5bn capital shortfall, including the proposal for bondholders and preference shareholders to exchange their holdings for equity in the bank. An exchange offer has been organised for November to agree to the so-called “bail in” flotation.

The offer is expected to raise £1bn of the £1.5bn capital needed. Bondholders will contribute £500m and the parent Group will also contribute £500m, although this is contingent on a successful exchange offer. The £500m will be funded primarily from selling its insurance business.In addition, the Group will issue a £500m bond, to cover the remaining shortfall. 

The plan has already seen investors have their income payments delayed from July until November. Co-op has previously stated that the delayed payments will be made if investors agree to the exchange offer.

An action group of Co-op bondholders has attacked the bank for not revealing the full terms of the exchange, some 10 weeks after the initial announcement. 

The action group’s co-ordinator, Mark Taber, of Fixed Income Investments, says: “It is disgraceful that Co-operative Bank has not given any more detail about its exchange offer a full 10 weeks on from the 17 June announcement that they are mindful of retail investors and will look at more suitable alternative.”

Taber adds the Prudential Regulation Authority should force the Co-op into making its £500m contribution, regardless of the success of the exchange offer.

He says: “The Co-op Group is unbelievably stating that its £500m contribution in 2014 is ‘contingent on successful exchange offer’. The Prudential Regulatory Authority should not allow this and should make a direction to the Co-op Banking accordingly.

”Also the Co-op has stated that Bank ‘will not be profitable for some years’ so presumably no prospect of a dividend on the ordinary shares they will be offering pensioners in exchange for their bonds for some years either. So how can their offer as announced to date be suitable for their pensioner investors?”