tomcatwarneOPOcean City, Plumouth, Devon, England UK17,106 posts
Pensioners and other retail investors in the Co-operative Bank are facing massive losses under a £1.5bn rescue plan for the ailing mutual. The bank said the plan meant both investors and the group would make "a joint contribution" to the bank's recapitalisation, without any help from taxpayers. Euan Sutherland, the chief executive of the Co-operative Group, said that as the Co-operative Bank's parent it would also provide extra capital. "This announcement is good news for The Co-operative Group, The Co-operative Bank, its customers and our members," he said on Monday . Holders of £370m of permanent interest bearing shares (PIBS) issued by the Co-op and Britannia Building Society before its takeover are expected to have their coupons cancelled, making them effectively worthless. About £60m of PIBS are held by members of the public, paying interest annually of between 5.5pc and 13.5pc a year. PIBS are typically owned by pensioners, attracted by the steady guaranteed income. Roughly 7,000 retail investors will be affected and the bank said that, on average, they held less than £1,000 in these bonds. Under the terms of the rescue, the Co-op Group will offer them new bonds instead that will cut the value of their holding by more than half. The harsh terms for the PIBS holders are necessary as part of broader arrangement to plug £1bn of the £1.5bn capital hole by restructuring the Co-op's £1.3bn of junior debt. Under the deal, the Co-operative Group the bank's parent will issue a new £500m bond, paying about 6.5pc annually, to buy out the junior creditors. They will also be given equity in the group. The bulk of the new bond will be offered to the £1bn of "lower tier two" creditors, for whom the deal once the equity element is included will be worth about £700m, about in line with what their debt is trading at in the market. The arrangement will spare the Co-op the pain of having to sell any of its crown jewels, such as the funerals or pharmacy business, to plug the capital hole. The Co-op's insurance business is already on the block and will contribute a further £500m towards the £1.5bn total capital raising next year.
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The bank said the plan meant both investors and the group would make "a joint contribution" to the bank's recapitalisation, without any help from taxpayers.
Euan Sutherland, the chief executive of the Co-operative Group, said that as the Co-operative Bank's parent it would also provide extra capital.
"This announcement is good news for The Co-operative Group, The Co-operative Bank, its customers and our members," he said on Monday .
Holders of £370m of permanent interest bearing shares (PIBS) issued by the Co-op and Britannia Building Society before its takeover are expected to have their coupons cancelled, making them effectively worthless.
About £60m of PIBS are held by members of the public, paying interest annually of between 5.5pc and 13.5pc a year. PIBS are typically owned by pensioners, attracted by the steady guaranteed income.
Roughly 7,000 retail investors will be affected and the bank said that, on average, they held less than £1,000 in these bonds.
Under the terms of the rescue, the Co-op Group will offer them new bonds instead that will cut the value of their holding by more than half.
The harsh terms for the PIBS holders are necessary as part of broader arrangement to plug £1bn of the £1.5bn capital hole by restructuring the Co-op's £1.3bn of junior debt.
Under the deal, the Co-operative Group the bank's parent will issue a new £500m bond, paying about 6.5pc annually, to buy out the junior creditors. They will also be given equity in the group.
The bulk of the new bond will be offered to the £1bn of "lower tier two" creditors, for whom the deal once the equity element is included will be worth about £700m, about in line with what their debt is trading at in the market. The arrangement will spare the Co-op the pain of having to sell any of its crown jewels, such as the funerals or pharmacy business, to plug the capital hole.
The Co-op's insurance business is already on the block and will contribute a further £500m towards the £1.5bn total capital raising next year.