"Financing projects from £50,000 to £100 million"

Co-operative Bank to list shares to repair capital shortfall

Co-operative Bank to list shares to repair capital shortfall

The Co-operative Bank is to list shares on the stock market as part of a move to plug its £1.5 billion shortfall in capital.

The bank announced that it would be offering shares to bondholders after agreeing a 'bail in' deal with City regulator, the Prudential Regulation Authority.

Existing bondholders, including 7,000 existing retail investors with permanent interest-bearing shares, will be asked to accept new lower-yielding bonds together with shares.

The move has raised concerns that the bank will stray from its ethical ethos and become less attractive to customers as it becomes increasingly accountable to shareholders.

The bank said it was confident that the ‘bail in’ – a relatively untested method – was the logical next step for the bank.

The agreement helps banks to raise capital without mass deleveraging, though the Co-operative Group has also pledged to provide support.

Around £14.5 billion of non-core assets, many of which were acquired during the merger with the Britannia Building Society in 2009, have been siphoned off into a “bad bank” to be sold off.

Richard Pym, a non-executive chairman of the Co-operative Bank, said the development was a turning point for the bank.

"The completion of the measures will provide the foundations to support the long-term success of the Bank in offering a real alternative to customers," he said.

Fall of Project Verde

The bank stopped all new business lending last month to address its capital black hole following the downgrade of its debt to “junk” status by Moody’s, a credit ratings agency (read more).

Moody's heaped further misery on the Co-op again this week, warning the bank that it may need to go further if bondholders moved to prevent the stock market launch. It estimated that bondholders may get as little as a third of their initial investment back.

Meanwhile, the chief executive of Lloyds, Antonio Horta-Osorio, told MPs that he became aware of clear deficiencies in the Co-op's capital base late last year, which prevented the bank from buying up 632 branches under Project Verde. The Co-op eventually exited the deal in April.

"From the combined plan for Co-op and TSB, our analysis was clear that there was a shortfall of capital. That was when we had our first concerns about their ability to close the deal," he said.

Wednesday, 19 June 2013 14:10
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