Less than 3 months later, the bail-in of the western banking system has officially begun, as the UK’s Co-Operative Bank is seeking a £1.5bn bail-in recapitalization with junior bond holders and investors (including pension funds) facing a complete-100% wipe-out on £370m of permanent interest bearing shares (PIBS) issued by the Co-op.
As The Telegraph reports, the bail-in is “good news” for Co-Operative Group (Indeed!):
Co-operative Bank faces nationalisation if junior bondholders reject ‘haircut’
The Co-operative Bank’s rescue recapitalisation needs the support of £1.05bn – or around 80pc – of the holders of £1.3bn of its junior debt or the lender could end up being nationalised.
Euan Sutherland, the chief executive of the Co-operative Group, called the rescue plan “good news for The Cooperative Group, The Cooperative Bank, its customers and our members.”
He said it meant both investors and the group would make “a joint contribution” to the bank’s recapitalisation, without any help from taxpayers.
However, a group of pensioners and other retail investors in the Cooperative Bank are facing massive losses under the rescue.
Astonishingly, the banksters are taking the theft to an extreme not even seen in the Cyprus bail-in: 100% losses!:
However, a group of pensioners and other retail investors in the Cooperative Bank are facing massive losses under the rescue.
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.
Roughly 7,000 retail investors will be affected and the bank said that, on average, they held less than £1,000 in these bonds.
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. The bank said 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 £1.3bn of junior debt.
As DieselBOOM let out of the bag a touch early, the Cyprus bail-in was indeed a template, as bond holders will be bought out with devalued equity shares:
The Co-operative Group 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 as the bank prepares to float up to 50pc of its shares on the stock market later this year. It is the first time that bondholders have been asked to take a haircut to keep a British bank afloat.
While bond holders suffer 100% losses on the PIBS, Co-Operative Bank won’t have to sell any assets to raise capital:
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.
We are not the only ones apparently who can realize that bailing-in a UK bank could have drastic long term consequences on confidence in the banking system:
Andre Spicer, Professor of Organisational Behaviour at Cass Business School, said the £1.5bn bail might be a good short term solution to keep the bank afloat, but it could create longer term problems for the bank and the UK finance sector.
“The bail in represents a profound change in the business model of the Co-op bank – from being an institution owned by members, to a bank which has shareholders. This change is likely to clash with the cooperative ethos of the bank and, in the longer term, this might undermine what has made the Co-op attractive to its staff and customers,” he said.
“The bail in also represents a longer term challenge for the UK banking sector.
We warned readers that bail-ins were coming to the Western banking system, and that you must prepare NOW and exit the system.
Many scoffed and stated it couldn’t happen here. The canary in the coal-mine has been dead for 3 months. What have you done to protect your wealth?
GOT PHYZZ??
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