The Co-operative Bank has unveiled a new deal to fill a £1.5 bn gap in its finances. We answer five questions on the deal.
What does the deal consist of?
The deal consists of a “bail in” deal, whereby bond holders will be offered shares in the bank. It will also result in a stock market listing of the bank on the London Stock Exchange.
What does this mean essentially?
It ultimately means that the investors and the group make a joint contribution to the recapitalisation of the bank.
It also means that in the short term bond holders will lose out. However, eventually they will be able to exchange their bonds for shares gaining a minority stake in the bank, which will allow them to benefit from the eventual upside of the bank.
The bank said the number of shares and bonds offered in exchange for current holdings would be finalised in October, when its offer will be launched officially.
How many investors will actually be affected by the plan?
Seven thousand retail investors who own permanent-interest bearing shares (Pibs), which pay dividends of between 5.5% and 13% a year, will be affected by the plan.
If the bank is being listed on the stock exchange, does this mean the bank has changed its original ethos?
Chief executive Euan Sutherlandm, speaking to the BBC, said this was not the case.
“We have always been a PLC [public limited company] wholly owned by the Co-operative Group. The majority of the bank will still be owned by the Co-operative Group. There will be no change to our ethos or the way we run our bank,” he told the BBC.
Is the Co-operative group also contributing to the rescue plan?
Yes. The Co-operative group will provide extra capital.
The bank also said it had also approved the plan in full with the banking industry’s new regulator the Prudential Regulation Authority.