Co-op opens review into £1.5bn bank rescue

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The Co-op has launched an independent review into the events leading up to its beleaguered banking business's emergency £1.5bn cash call.

The review will be chaired by the former senior civil servant Sir Christopher Kelly, who has been chairman of both the Committee on Standards in Public Life and the Financial Ombudsman Service. It comes amid mounting controversy over the decisions made by the bank and regulators at the Bank of England.

Some 15,000 retail bondholders will lose as much as 60 per cent of their savings as the Co-op plans to convert their holdings to equity in the bank, which will be listed on the London Stock Exchange, to raise £500m. The Co-op group will inject a further £1bn, half of which will come from the sale of its insurance businesses.

It also emerged yesterday that the directors had considered making the bank the first in Britain subject to a "living will" – a "recovery and resolution plan" – set up in the wake of the financial crisis. Had the Co-op proceeded with the plan, its bank would have closed after more than 140 years.

An action group made up of retail bondholders has criticised the regulators' decisions, arguing that the Co-op was adequately capitalised and was forced to move too quickly. Sources close to the Co-op bank argued that they had no other option and, if the bank executed its living will, bondholders could end up with nothing.

The review is set to report to next year's annual meeting in May.