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Co-op Group loses majority control of banking division Co-op Group loses majority control of banking division
(35 minutes later)
The Co-operative Group will lose majority control of its banking arm after it was forced to renegotiate the bank's £1.5bn rescue with US hedge funds that own its debt.The Co-operative Group will lose majority control of its banking arm after it was forced to renegotiate the bank's £1.5bn rescue with US hedge funds that own its debt.
The Co-operative's chief executive, Euan Sutherland, said the operator of funeral homes, pharmacies and grocery chains would own 30% of the Co-op Bank under an agreement thrashed out with the hedge funds.The Co-operative's chief executive, Euan Sutherland, said the operator of funeral homes, pharmacies and grocery chains would own 30% of the Co-op Bank under an agreement thrashed out with the hedge funds.
The Co-op Group said earlier on Monday that it expected changes to the original plan. Sutherland then appeared on the group's website and gave a short statement in which he insisted the group would keep efffective control of the bank and would "embed" its values to preserve its position in the market. The Co-op Group said earlier on Monday that it expected changes to the original plan. Sutherland then appeared on the group's website and gave a short statement in which he insisted the group would keep effective control of the bank and would "embed" its values to preserve its position in the market.
Sutherland said: "I'm pleased to announce that we have reached an agreement in principle that saves the Co-ooperative Bank. As a group the Co-operative retains effective control of the bank. I'm pleased to say we have secured 30% of the equity which makes us the single largest shareholder." Sutherland said: "I'm pleased to announce that we have reached an agreement in principle that saves the Co-operative Bank. As a group the Co-operative retains effective control of the bank. I'm pleased to say we have secured 30% of the equity which makes us the single largest shareholder."
The original rescue plan would have left the Co-operative Group with 75% of the bank, which was to list on the stock market.The original rescue plan would have left the Co-operative Group with 75% of the bank, which was to list on the stock market.
The increased influence of the hedge funds and the Co-operatiuve's minority stake will raise concerns about whether the bank – which installed new management only five months ago – will be able to keep its ethical stance and deals a blow to the mutual banking sector. The increased influence of the hedge funds and the Co-operative's minority stake will raise concerns about whether the bank – which installed new management only five months ago – will be able to keep its ethical stance and deals a blow to the mutual banking sector.
However, Sutherland said: "This bank will remain the Co-operative Bank. We are embedding the cooperative principles in the constitution of the bank to guarantee this." He promised more details in the next few days. However, Sutherland said: "This bank will remain the Co-operative Bank. We are embedding the co-operative principles in the constitution of the bank to guarantee this." He promised more details in the next few days.
News of the rethink came as the bank admitted it had a larger-than-expected bill for compensating customers mis-sold payment protection insurance, and would need to boost its capital provisions by around £100m.News of the rethink came as the bank admitted it had a larger-than-expected bill for compensating customers mis-sold payment protection insurance, and would need to boost its capital provisions by around £100m.
The US hedge funds which own debt in the Co-op Bank had warned they had enough support to block the original plan. The Co-op was asking bondholders to take £500m of losses while the group injected £1bn into the bank.The US hedge funds which own debt in the Co-op Bank had warned they had enough support to block the original plan. The Co-op was asking bondholders to take £500m of losses while the group injected £1bn into the bank.
But Aurelius Capital Management, best known for forcing Argentina to pay out on its debts, and Silver Point Capital, linked to distressed groups such as Lehman, had argued that Co-op Group should give them more shares in return for the losses on their bonds. They did not want the Co-op to own as much as 50% of the bank after it floats on the stock market.But Aurelius Capital Management, best known for forcing Argentina to pay out on its debts, and Silver Point Capital, linked to distressed groups such as Lehman, had argued that Co-op Group should give them more shares in return for the losses on their bonds. They did not want the Co-op to own as much as 50% of the bank after it floats on the stock market.
The group – which was formed by the Rochdale Pioneers in 1844 – has conceded draw up a new restructuring plan by the time it publishes a prospectus outlining the terms of the £1.5bn rescue. That prospectus has been scheduled for next Monday and is expected to show that the Co-op Group will have to give up any hope of a majority stake in the bank . The group – which was formed by the Rochdale Pioneers in 1844 – has conceded it will need a new restructuring plan by the time it publishes a prospectus outlining the terms of the £1.5bn rescue. That prospectus has been scheduled for next Monday and is expected to show that the Co-op Group will have to give up any hope of a majority stake in the bank.
The latest twist in the attempts by the Co-op to stave off nationalisation of the bank emerged as the former boss of the mutual prepares to give evidence to the Treasury select committee about the problems of the bank. Peter Marks retired in June after 40 years with the Co-op but did not attend what would have been the last annual meeting in May after the scale of the problems in the bank emerged.The latest twist in the attempts by the Co-op to stave off nationalisation of the bank emerged as the former boss of the mutual prepares to give evidence to the Treasury select committee about the problems of the bank. Peter Marks retired in June after 40 years with the Co-op but did not attend what would have been the last annual meeting in May after the scale of the problems in the bank emerged.
Only a few months ago the bank was in talks to buy 631 branches from Lloyds Banking Group in what was seen a boost for the mutual sector. But when those talks fell apart – dealing a blow to government hopes of new competition on the high street – the problems at the Co-op started to become clear.Only a few months ago the bank was in talks to buy 631 branches from Lloyds Banking Group in what was seen a boost for the mutual sector. But when those talks fell apart – dealing a blow to government hopes of new competition on the high street – the problems at the Co-op started to become clear.
The two hedge funds are thought to have built up their holdings in Co-op bonds after the bank was downgraded to junk in May and its chief executive, Barry Tootell, quit. They are known for battling to avoid losses on their investments. Led by Mark Brodsky, Aurelius has been involved in debt restructurings as diverse as Dubai World and of the US publisher Tribune, owner of the Los Angeles Times. Silver Point Capital is run two former Goldman Sachs employees, Edward Mulé and Robert O'Shea. It has a wide range of investments covering broadcasting – it bought two US TV stations out of bankruptcy – as well as car makers and financial services and was involved in the bankruptcy of Hostess, the US food company best known for its Twinkies cakes. The two hedge funds are thought to have built up their holdings in Co-op bonds after the bank was downgraded to junk in May and its chief executive, Barry Tootell, quit. They are known for battling to avoid losses on their investments. Led by Mark Brodsky, Aurelius has been involved in debt restructurings as diverse as Dubai World and of the US publisher Tribune, owner of the Los Angeles Times. Silver Point Capital is run two former Goldman Sachs employees, Edward Mulé and Robert O'Shea. It has a wide range of investments covering broadcasting – it bought two US TV stations out of bankruptcy – as well as carmakers and financial services and was involved in the bankruptcy of Hostess, the US food company best known for its Twinkies cakes.
There are also private investors in Co-op bonds who are concerned about the scale of their losses. There are reports the group could set up a hardship fund for these investors, who bought the bonds for retirement income. Activist investor Mark Taber, who represents the private investors, says there around 15,000 of them and many are "very elderly and vulnerable".There are also private investors in Co-op bonds who are concerned about the scale of their losses. There are reports the group could set up a hardship fund for these investors, who bought the bonds for retirement income. Activist investor Mark Taber, who represents the private investors, says there around 15,000 of them and many are "very elderly and vulnerable".
Sutherland said the deal would be in the interests of the "hard-working families" that had invested in the bank.Sutherland said the deal would be in the interests of the "hard-working families" that had invested in the bank.
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