Co-op Bank bondholders target their fury at City watchdogs

They want to know why board was let off the hook over banking arm

Associate Business Editor

Furious holders of Co-operative Bank bonds have demanded answers from watchdogs after it appeared that they voluntarily gave up powers which could have been used to force the group to inject more cash into its  beleaguered banking operation.

The Financial Services Authority (FSA) granted the company a three-year waiver from being overseen as a “mixed financial holding company” in 2012 in the midst of Co-op Bank’s failed bid to buy Verde, now TSB, from Lloyds Banking Group.

That means the Bank of England’s Prudential Regulation Authority (PRA), one of the two successors to the FSA, cannot now issue what is known as a “qualifying parent undertaking order”, which bondholders argue could have been used to force it to inject more cash into its banking division.

Co-op is finalising plans that will see it inject £1bn into the troubled bank with bondholders providing a further £500m through their holdings being converted into new shares representing a third of a recapitalised bank under the control of Co-op Group.

But hedge funds, which have built up a substantial holding in the bonds, have demanded a better deal and last night the Co-op said it had set up an “independent committee of the board of the Co-operative Bank” led by chairman Richard Pym to consider this.

Campaigners for small savers, many of whom relied on the bonds for income, have written to PRA chief executive Andrew Bailey to demand answers.

They have obtained a letter from Euan Sutherland, the chief executive of Co-operative Group, which says: “Looking . . . at the issue of the powers of the Prudential Regulation Authority (“PRA”) in terms of qualifying parent undertaking orders, these apply to companies designated as an insurance holding company, a financial holding company or a mixed financial holding company. CGL is none of these, so the powers of the Prudential Regulation Authority (“PRA”) and Financial Conduct Authority (“FCA”) to make such directions do not extend to it.”

Mr Sutherland goes on to explain that the FSA discussed Co-op’s status when it was trying to complete the deal with Lloyds. He says in the letter: “The FSA advised CGL that it might fall within the definition of ‘mixed financial holding company’, even in advance of completion of Verde, due to the relative size of its financial institution subsidiaries.

“Following an application from the group’s financial institution subsidiaries, the FSA granted a three-year waiver from CGL being considered a mixed financial holding company and put the matter beyond doubt.”

Mark Taber, who has been campaigning on behalf of retail bondholders, claimed: “Not only was this an incredible waiver to grant in the circumstances, but also its existence was not disclosed to the market, which had every reason to believe that the CGL stood behind its Bank and could be required to do so by the regulator.”

Mr Taber said it was vital the PRA addressed this point because “it is necessary for people to believe that the Co-op is doing as much as it can and it is important bondholders believe that because Co-op isn’t inviting them in. This is a process that has to be consensual and at the moment it isn’t”.

The Co-op declined to comment on the letter last night. A Bank of England spokesman said it would be responding to Mr Taber “in due course”.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
Highs and lows of the cast's careers since 2004
New Articles
i100... with this review
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam