Co-op bondholders attack PRA over ‘punitive’ capital rules


Retail investors in the ailing Co-operative Bank have hit out at the Prudential Regulation Authority over what it calls “punitive and disproportionate” capital requirements which are forcing a rescue plan to plug a £1.5bn capital shortfall.

An action group, said to represent over 1,300 Co-op bondholders and co-ordinated by Mark Taber of Fixed Income Investments, has sent an open letter to PRA chief executive Andrew Bailey challenging the regulator to review the capital requirements it is imposing on the Co-op.

The letter notes evidence given by Bailey to the Treasury select committee earlier this month during which Bailey admitted the FSA knew the Co-op needed to raise capital in 2011. Taber questions why the regulator failed to disclose this information to bondholders and the public, and at a time when the Government was publicly endorsing the Co-op model.

Taber also challenged the terms of the Co-op rescue deal, announced last month, asking why bondholders are having to shoulder losses rather than the bank’s parent company the Co-operative Group.

The letter says the rescue deal has been prompted by the PRA’s “ recent punitive and disproportionate actions”.

It says: “The PRA’s position and inflexibility has caused everyone to dig their heels in, threatens to cause a standoff and risks an outcome nobody wants.”

Taber has called for the PRA to review the £1.5bn capital requirement for the Co-op and the timetable the bank has to meet this; to publish the basis on which the shortfall has been determined; and reveal what commitments if any the PRA has secured from the Co-op Group about what future support the parent company will provide to the bank.

The proposed Co-op rescue deal will see bondholders, institutional investors and Co-op Bank’s parent company the Co-op Group jointly contribute towards plugging the hole in the Co-op Bank’s balance sheet. Around 7,000 small retail investors are affected.

Bondholders will no longer receive their expected coupons and instead will be offered a combination of unsecured bonds issued by the Co-op Group and shares in the bank.

The Co-op pulled out of a deal to buy 632 branches of Lloyds Banking Group in April.