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Hedge funds attack ‘irresponsible’ Co-operative Bank

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A group of US hedge funds has slammed the Co-operative Bank for being “irresponsible” following a lack of engagement ahead of the bank’s crucial debt restructuring.

Investment bank Moelis & Company, which is acting for a consortium of bondholders including US hedge funds Aurelius Capital Management and Silver Point Capital, made its attack after the bank said it would only negotiate with bondholders once the terms of its £1bn debt exchange had been finalised, the Financial Times reports.

Moelis managing director Caroline Silver told the newspaper: “The bondholders we advise are determined to see Co-op Bank placed on a strong financial footing by the end of this year as required by the regulator.

“There are commercially reasonable ways to achieve this goal, but these require bondholder co-operation, which has consistently been offered. It would therefore strike us as irresponsible for the bank’s officers and directors to refuse to engage with bondholders and to waste time putting together a unilateral, take-it-or-leave-it offer.”

The debt exchange is a vital component of Co-op’s efforts to plug a £1.5bn capital hole. Bondholders face haircuts on their investments as part of the move to convert existing debt into equity and new bonds and are expected to contribute about £500m to the £1bn exchange, with Co-op Group supplying the other £500m.

The Co-op says: “While we recognise the concerns of these professional investors in the bank’s bonds, we believe that our plan … is in the long-term interests of the wider stakeholders in the group and the bank.

“We are currently preparing the prospectus enabling the bank to float and will, of course, be happy to engage formally with all affected bondholders and preference shareholders at the right time.”

Last week, The Co-operative Bank reported losses of £709m for the first half of the year, driven by losses of £496m from and £61m related to further consumer redress payments, including PPI misselling. This compares with losses of £57m for the same period in 2012.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Neil F Liversidge 3rd September 2013 at 9:06 am

    Who acts less responsibly than the average hedge fund manager, who thinks nothing of shorting on a massive scale, regardless of the disruptive effect on companies and countries? They are greed epitomised and when things go bad for them, as with LTCM, through nothing but their own hubris, they look to others for help. .

  2. If you read the Co-op bank’s web site it makes it clear that the bonds in question are only for sale to certain nationals or their nominees. The list does NOT include the USA. so are these hedge funds(if they actually own any bonds) are holding them illegally.
    The hedge funds are making a lot of noise no doubt for their own devious purposes.
    The UK regulator has made it clear it is happy with the Co-op banks plans and the Co-op Bank has laid out a clear timetable.
    Lets stop whinning and wait and see.
    But lets make it clear ,the Co-op members that own the Co-op group, will only accept a solution that means the Co-op group retains at least 65% of the shares in the Bank and a absolute commitment, that the Co-op Bank will eventually return, as a wholly owned subsidary of the Co-op Group.
    If that is not on the table, no more money should be commmitted to the Co-op Bank (we have already written off over £1 billion, of group’s money.)
    Better to close the bank, at no more cost to the group and a total loss to the Bond holders!!!

  3. Co-op Bank Employee 3rd September 2013 at 4:50 pm

    I have worked for the co-operative bank for a number of years and the management of the business for the last 8 months has been to get money into the business as there is clearly a panic on how much money we hold. This has meant that the management of the business is solely interested in Bonds, not interested in current accounts or smaller savings customers, not even interested in treating their employees with respect. I think that should bondholders back this plan (which personally I don’t want them to) then the bank in the next 2 or 3 years will either collapse or will be taken over by another reputable competitor who can run a bank. I think this disaster has been much in the waiting and the management linking this crisis to people not performing is correct, however, the finger is being shaken at those in the calls centres and branches, where it should be at management and senior management, Too many managers and executives paid to much money to look at spreadsheets and don’t know what is happening in the real world.

    I loved working for the co-operative a few years back, but unfortunately I think it is time to let this business run down and let people move on rather than drag this saga on and impact the rest of the co-operative groups successful businesses.

  4. The Co-op group closes the bank, the name brand will be destroyed and everyone will take losses not only Bondholders !!!

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