Co-op Bank bondholders rung at home. Could the deal collapse?

Individual Co-op Bank bondholders are now being rung at home, to remind them of the importance of their vote on the Bank’s rescue package.  It’s a sign that the Co-op Bank deal is by no means done and dusted.

The revised Bank offer, announced earlier this month, imposes financial penalties on the 13,000 or so individual investors who hold ex-Britannia permanent interest-bearing shares (Pibs), the bank’s own preference shares or certain other Bank bonds. But nevertheless the deal has generally been viewed by professional advisers as the best that could be reached in the circumstances.

However unless investors can be persuaded to vote in favour (or, perhaps more to the point,  be persuaded that they have to vote at all) the deal will fall.  For each class of bond, a three-quarters majority is necessary.  So no wonder the phone lines are being used in an attempt to get out the vote.

The deadline is 6 December, although – to encourage a faster response from investors – the terms are more generous to investors if they vote by 29 November.  So we’re down to the last few days.

What happens if the votes don’t receive the necessary support?  The Co-op Bank would presumably have to accept what’s called Resolution – and that, in practice, means being nationalised or liquidated.  Savers would have the standard £85,000 protection;  bondholders could lose everything.

That’s not the only uncertainty. Former Labour minister Lord Myners has mischievously suggested that the corporate bondholders (led by the two US-based vulture funds) might be able to renege on the deal agreed and try to negotiate a new, better, deal (or in other words, an even smaller holding in the Bank for the Co-operative Group).  It is not clear to me whether this is a legal possibility, but certainly it can be argued that the Co-op Bank’s brand has at present been badly damaged by the Paul Flowers revelations.

Whatever happens, the Co-op Bank is effectively lost to the cooperative movement.  But exactly what will happen to a once-proud ethical bank is by no means clear and there are some nervous people in Manchester at the moment.

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