Investors railing against Co-op’s rescue scheme

In an open letter to PRA chief executive Andrew Bailey, financial analyst Mark Taber said he had been contacted by 1,300 bondholders after the Co-operative Group unveiled plans last month to fill a £1.5 billion black hole in its finances. Taber, who led a campaign in 2011 against similar plans by Bank of Ireland, claimed that a “false market” had been created in the Co-op Bank’s bonds in the run-up to the rescue plan because neither the regulator nor the Co-op Group had told bond-holders about the capital shortfall.

Taber, who said he was writing on behalf of 15,000 bond-holders, branded the PRA’s assessment of the lender’s financial health as “arbitrary and putative” and demanded a review of the regulator’s decision.

The Co-op Group plans to float its bank on the stock market in November, with the prospectus for the sale expected in October.

Under the scheme, the Co-op Group’s current shares in the bank would be wiped out, with the group issuing a £500 million bond and selling its general insurance businesses for a further £500m to buy back a controlling stake in the lender. The remainding cash to fill the black hole would come from bonds being converted into shares, at an expected 30 per cent discount.

A PRA spokeswoman said the letter had been received and that the PRA will respond in due course. The Co-op Bank said the rescue deal was an “equitable solution”.

PETER RANSCOMBE