Co-op bondholders set to vote on bank’s rescue plan

The Co-operative Bank’s bondholders are set to vote on Friday for or against its rescue plan, which aims to plug the lender’s £1.5 billion black hole. This is despite the bank already reaching a deal with institutions.

The bank’s investors must vote on the rescue deal by 4:30pm. A final deadline is also set for next month if sufficient votes are not received. If investors fail to approve the plan the bank could be nationalised, potentially reducing bondholders’ returns.

Eva Olsson, a credit analyst at Mitsubishi UFJ Securities, told Bloomberg, “A vote against any of the bond issues would mean the bank would have to basically liquidate. If they can’t get hold of two-thirds [of investors] it goes to a second vote, so getting things done by the year-end will be very tight.”

The rescue deal saw hedge funds take a 70% stake in the bank, along with the announcement that 15% of branches will close.

Whilst the Co-op has continuously said that it will stand by its ethical principles others, including the group’s former CEO Peter Marks, have said this will not be possible under its new structure.

The vote is being held just days after the Co-op Bank admitted it was losing current account customers. It linked this decline to the current account switching service and reputational damage.

The chancellor George Osborne recently ordered an inquiry into the bank’s appointment of Paul Flowers as chairman, despite his admissions that he was under qualified for the role, and more recently, buying class A drugs.

The bank said, “Recent events, together with the competitive landscape in which the bank operates, the introduction of the seven-day account switching and the associated increased competitor marketing activity at a time when the bank has been constrained in its ability to undertake its own marketing activity, may be a contributing factor to an increase the bank has seen in the switching of current accounts.”

It added that it was still to early to assess the full impact but that the bank’s retail deposit base remains “broadly stable”.

One of the US hedge funds invested in the Co-op, Aurelius Capital, has sold down almost its entire stake to a rival, Perry Capital. It has been reported that the sale was due to financial concerns rather that the bank’s reputation.

Further reading:

The Co-op Bank has been spiky, fearless and political; it’s imperative it remains ethical

Former Co-op Bank chairman Paul Flowers arrested

George Osborne order inquiry into Co-op’s appointment of Flowers

Co-op cuts Christmas dividend following bank recapitalisation

Co-op bank prepares to sell renewable lending division