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Pensioners Face Huge Losses From Co-Op Rescue

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http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10123973/Pensioners-face-huge-losses-from-Co-op-rescue.html

'Holders of £370m of permanent interest bearing shares (PIBS) issued by the Co-op and Britannia Building Society before its takeover are expected to have their coupons cancelled, making them effectively worthless.

As should have happened to bond holders of all the banks that went bust in 2007-9. At least Mr Bailout is no longer in government.

About £60m of PIBS are held by members of the public, paying interest annually of between 5.5pc and 13.5pc a year. PIBS are typically owned by pensioners, attracted by the steady guaranteed income.

Sloppy journalism. Those numbers are the coupon rates, not the interest rates you'd have got by buying them.

Under the terms of the rescue, the Co-op Group will offer them new bonds instead that will cut the value of their holding by more than half.

Oh, so it's not what you said in the first sentence above, it's a restructuring. Bloomin' journos.

The harsh terms for the PIBS holders are necessary as part of broader arrangement to plug £1bn of the £1.5bn capital hole by restructuring the Co-op's £1.3bn of junior debt.

Indeed, but more conventionally you'd suspend the PIBS payout. The PIBS would retain some value depending on expectations of when payments might resume. Some PIBS got suspended in about 2008, making a fantastic buying opportunity for the brave who were prepared to wait.

Under the deal, the Co-operative Group – the bank's parent – will issue a new £500m bond, paying about 6.5pc annually, to buy out the junior creditors. They will also be given equity in the group.

Interesting. How does equity in the Co-op work?

The bulk of the new bond will be offered to the £1bn of "lower tier two" creditors, for whom the deal – once the equity element is included – will be worth about £700m, about in line with what their debt is trading at in the market. The arrangement will spare the Co-op the pain of having to sell any of its crown jewels, such as the funerals or pharmacy business, to plug the capital hole.

Sounds like regular crisis-mechanisms kicking in: holders of the highest-risk (hitherto highest-interest) debt lose out to plug a gap. The (only) losers are the bondholders and the bank's credit rating.

Co-op sources said the deal was good for the majority of bondholders. "This is a solution by the Co-operative Group to what, if the bank had been independent, would have been a nationalisation," one said.

Sounds right.

The insider conceded the group was aware there could be an outcry among retail investors but argued there was little choice because of where they sat in the capital structure. PIBS are the mutual sector's equivalent of shares, which arguably could have been completely wiped out had the bank been listed.

Up to a point, Lord Copper. PIBS are fixed-interest, putting them in the family of bonds or prefs, not ordinary shares.

Bondholders will have to sign up voluntarily to the so-called "liability management exercise". Some have warned privately that they would be prepared to take the Co-op Group to court in protest at losses they claim were caused by the Group's decision to buy Britannia in 2009.

Hmmm, would that be something like the Lloyds shareholder action? Seems their grounds for action look like a subset of the Lloyds grounds.

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Hmmm, would that be something like the Lloyds shareholder action? Seems their grounds for action look like a subset of the Lloyds grounds.

The correct way to do this would be to put CoOp into run off, protect the £85k, keep the rest as creditors and keep collecting on the mortgages and see how things turn out in 10 - 20 years. The customers could be sold off / hived off into a new bank etc - the good bank / bad bank thing and the bad bank will hold the 'good bank' + all the assets. .

It is not known whether the current capital is insufficient to absorb all losses - it is just that the capital is insufficient to to meet the 8% or whatever that the PRA wants.

But well... unfortunately correctness is not the only factor to be considered.

Edited by easy2012

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Under the deal, the Co-operative Group – the bank's parent – will issue a new £500m bond, paying about 6.5pc annually, to buy out the junior creditors.

There's a saying round these parts:-

"Fool me once, shame on......you. Fool me twice......don't get fooled again!"

Co-op sources said the deal was good for the majority of bondholders. "This is a solution by the Co-operative Group to what, if the bank had been independent, would have been a nationalisation," one said.

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There's a saying round these parts:-

"Fool me once, shame on......you. Fool me twice......don't get fooled again!"

Think you underestimate the number of people looking for yield. It doesn't look too harsh a deal for these poor innocent pensioners who've been getting massive yields for years anyway.

Edited by Venger

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  • 241 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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