Co-op bondholders could receive free financial advice

The Co-operative Bank could pay for its small bondholders to receive financial advice, in an attempt to repair its damaged reputation, according to City AM.

The Co-operative Group is reportedly concerned that its standing as an ethical bank is being compromised by its recent capital crisis.

To fill a £1.5 billion hole, the group has plans to inject £1 billion itself and force investors to shoulder a £500m loss on their £1.3 billion investment.

Retail investors holding junior bonds will be offered new bonds in the group and shares in the bank. The package is expected to mean losses of around 30% for the retail investors.

The Co-op estimates that 7,000 investors are affected, and will offer these investors free financial advice.

After the retail distribution review (RDR) set a standard charge for institutions offering financial advice, the Co-op was forced to pull out of offering advice following the closure of Axa’s UK bancassurance arm.

If the rescue plan fails to gain the approval of a majority of bondholders however, the Co-operative Group has said it may have to put the bank into resolution with the Bank of England. This would see the Co-op’s ownership and control handed over to the UK’s central bank.

The group recently announced the launch of an independent review into the circumstances that led to the shortfall. Meanwhile, the bank’s chiefs have insisted that the bank will not lose its ethical values in the recovery process.

Speaking after the Co-op’s capital crisis became public in June, Ed Mayo, secretary-general of trade body Co-operatives UK, said, “The Co-operative Bank has been an ethical pioneer in banking and one of the reasons it has been able to stand out is that it is owned, ultimately by its customers. The new capital injection doesn’t change that.”

 “These moves ensure a substantial financial cushion that can underpin commercial success and the ethical values that have underpinned that. British banking as a whole is better off as a result of these actions to safeguard the Co-operative Bank.”

Further Reading:

What does the Co-op Bank’s rescue plan mean for its co-operative status?

We’re still ethical, says Co-op Bank chief after unveiling rescue plan

Co-op Bank faces uncertain future as deal to buy Lloyds branches collapses

Co-op Group records loss after ‘challenging’ year

The Guide to Sustainable Banking 2012