PRA: No guarantee Co-op Bank sales will boost capital

PRA chief executive Andrew Bailey

The Prudential Regulation Authority says it cannot give an “ironclad guarantee” that money raised through the sale of the Co-operative Bank’s insurance arms will be used to plug its £1.5bn capital shortfall.

Around 1,300 Co-op bondholders are being represented by Mark Taber of Fixed Income Investments, a campaign group and online resource for private fixed income investors.

Taber sent an open letter to the PRA last month attacking the regulator for imposing “punitive and disproportionate” capital requirements on the Co-op forcing a rescue deal.

The £1.5bn rescue plan announced by Co-op in June will see bondholders, including around 7,000 small retail investors, exchange their investments for shares in the bank. Additional capital will be provided by the £219m sale of the Co-op’s life insurance and asset management arms to Royal London, approved last week, and the sale of its general insurance arm.

In his response last week, PRA chief executive Andrew Bailey says: “The way the Co-op Bank chooses to raise capital is not a matter for the PRA but for the firm itself. The PRA is therefore not in a position to provide the ‘ironclad guarantee’ you request that such sale proceeds be injected into the bank in all circumstances as this is a matter for the Co-op Group and the Co-op Bank to determine.”

Taber replied to Bailey last week, saying retail investors in the Co-op are innocent victims of “past regulatory inaction.”

Attain Wealth Management managing director Gordon Crothers says: “If the bondholders are not happy with the terms of the rescue deal, they need to stand up and be heard. They are the ones that have the real power to hold the Co-op to account.”