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Fears for Co-op Pibs-holders as bank delays payments

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Pensioners and retail investors are facing delays for payments on Co-operative Bank permanent interest bearing shares sparking fears they may not be paid in full.

The Prudential Regulation Authority is not allowing the bank to pay out on bonds until it has a credible rescue plan in place after it revealed a £1.5bn capital shortfall in April due to bad commercial loans from the Britannia Building Society.

The capital hole forced the Co-op to abandon its bid for Lloyds Banking Group’s 632 branches and saw chief executive Barry Tootell quit

Pibs are shares issued by building societies which pay a fixed rate of interest and can be traded on the London Stock Exchange. Britannia Building Society issued the Pibs before it was taken over by the Co-op in 2009.

Interest payments for perpetual subordinated bonds paying 13 per cent interest were scheduled for 31 July but will be deferred until November when they are set to be exchanged for shares in the bank. The Co-op says assuming the exchange is successful it will pay interest on the Pibs “in full and in cash”.

The bank states: “All investors in the 13 per cent bonds including those investors who tender their 13 per cent bonds in the exchange offer, will receive the deferred interest payment, in cash, on successful completion of the exchange offer, expected in November.”

The Co-op bondholders action group branded the move “very cruel” and cast doubt over whether they will be paid in full.

Group head Mark Taber says: “This is terrible news for around 7,000 pensioners and individuals who rely of these former Pibs for income, it will cause further distress and hardship. It is also unnecessary on the part of the PRA as delaying payment does not improve the capital position of the Bank. It is very cruel to hold pensioners’ income hostage to the future offer in this way as whether or not the pensioners accept will not determine the success of the offer on which their income is being made dependent.

“By admission of the Co-op they only account for £65m of its £1.3bn subordinated bonds. There is world class buck passing between the PRA and the Co-op rather than urgently reviewing the situation, as has just been done in the case of Nationwide, and the pensioners are suffering further as a result.”

Nationwide has agreed to plug its capital hole without asking investors to take a hit. Its plan involves the shortfall being absorbed in the profits of the business.

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  1. Because the Co-op group owns the equity in Co-op bank, it should absorb all the losses before retail investors, including many pensioners, are “wiped out” as the Co-op is currently threatening. If you own any of these bonds, I suggest you sign up with the http://www.fixedincomeinvestments.org.uk/home/co-op-bank-retail-investors-campaign led by Mark Taber which is fighting back on behalf of small investors.

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