Alarmed by the Times report: “Officials at the Bank of England are poised this weekend to sign off a £1bn rescue of the Co-operative Bank that will hammer 5,000 small investors”, I discussed this with an investment bank senior, working abroad, who had not heard the news.
He found it hard to believe and suggested that it would be ‘the market’ who is ‘hammering’ those described as ‘loyal customers that decided to buy bonds as an investment’ by This is Money. Many bought them to bolster personal pensions and ‘self-select’ ISAs, some of which may be affected.
When Moody’s downgraded the bank’s credit rating in May, the perpetual subordinated bonds almost halved in value. The price of the Co-op 13% £100 subordinated bond fell from £153 to £83 before a modest recovery.
The latest announcement was criticised by the investment community: “This is a frustrating announcement,” said Rik Edwards, analyst at Canaccord Genuity. “The devil will be in the detail and we’re not going to get the detail until October.”
The strategy-based verdict of Jonathan Eley, personal finance editor of the Financial Times:
“Co-op’s troubles began when it went empire-building in pursuit of market share and a seat at banking’s top table. Similar things have happened to others that tried to expand by acquisition, by using wholesale funding instead of deposits, or by incautious lending – Dunfermline, Chelsea, Cheshire, Barnsley and sundry other mutuals had to be rescued, either by taxpayers or bigger mutuals”.
(W)hether bondholders like it or not, this is the future. Taxpayer bailouts are out. So are raids on insured depositors, after the debacle in Cyprus. Bondholder bail-ins are the new blueprint for dealing with troubled banks – and subordinated bondholders are bottom of the pile.
The ethics-based verdict of Midlands Co-operative Society CEO is applicable
In September 2005, the former Midlands Society Chief Executive and Co-op Group director, Willie Tucker, said he passionately believed in the co-operative model, which was as relevant today as it was over 100 years ago. At his retirement meeting, 120 colleagues, a government minister, friends and family, heard him say:
“There are still too many examples of individuals – sometimes at the highest levels – who are using the Movement for their own personal convenience having lost sight (if indeed they ever had sight) of what exactly it is we are trying to achieve through co-operation”.
Co-operative News: Willie’s parting shot: 6.9.05