Co-operative Bank’s customers and employee representatives yesterday said they feared for the future of Britain’s only ethical bank after bondholders forced a radical change to its recapitalisation plan.
Under a deal currently being thrashed out, the Co-operative Group will hold just 30 per cent of the bank with the rest in the hands of hedge funds and other institutional investors who hold Co-op bonds.
This represents a major climbdown by the group’s new chief executive, Euan Sutherland, and the bank’s new chief executive, Niall Booker, who had originally presented a plan handing the Co-operative Group up to 75 per cent. They warned that a wind up was the only alternative.
Despite a pledge by Co-op that an ethical stance would be written into the constitution of the bank, the Unite union described it as a “tragic day for Co-operative Bank”.
National officer Dominic Hook said: “This is dreadful for the staff, customers and the wider banking industry. This may mean ... yet another finance company seeking shareholder returns over better banking.”
He said the union was seeking “urgent talks” with the bank to find out what the development would mean.
One Co-op bank member told The Independent they would consider leaving if the bank was owned by “a bunch of hedge fund and City investors”.
The bank also revealed that it had found a further £100m to £105m of extra provisions needed to cover payment protection insurance mis-selling, bad debts and breaches of the Consumer Credit Act.
This has been notified to the Prudential Regulatory Authority, but it decided that there was no need to increase the £1.5bn of extra capital Co-op Bank must find by the end of 2014.
More details of the new recapitalisation plan are expected to be released in the coming days.
Retail investors who own most of the £370m in “upper tier” bonds are set to be offered new instruments which will give them an income, although they will still have to accept a loss. Meanwhile institutional investors will be offered a greater share of the equity in the bank in return for their £940m of lower tier bonds.
In a statement to the stock market, Co-op Group said that the new terms would be “materially different” to those outlined in June, but gave no date for when those plans might be made public.
The Co-op reeds to raise £1bn for the bank by the end of this year. The other £500m is due next year.