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Co-op Bank prepares for debt-for-equity swap deal

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  • 30/05/2017
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Co-op Bank prepares for debt-for-equity swap deal
The Co-operative Bank is laying plans for a debt-for-equity swap to shore up its capital reserve position to satisfy the regulator within the next two weeks.

According to a Financial Times exclusive, the Co-op is moving to stave off mounting concern that large depositors including charities and building societies could face losses if the bank is wound up.

The beleaguered bank, which uncovered the hole in its balance sheet in 2013, is hoping to launch a debt-for-equity swap — where investors may swap their bonds for shares at a loss — inside a fortnight, in order to complete the process before £400m of senior bonds mature in September, the FT has learnt.

The Co-op Bank publicly confirmed in January that it needed to raise more capital or would fall short of the regulatory capital reserve threshold in the next few years. It hopes to raise £450m from the equity swap but must also raise £300m in new equity.

Without this new deal, an orderly wind-down of the bank could be sought in the first test of the Bank of England’s stance on capital strength.

The bank is still reportedly seeking a sale process but the provider, which includes intermediary mortgage lender Platform Home Loans, has failed to secure a buyer for the whole company with its Britannia and Co-op pension liabilities proving an obstacle for buyers.

One commentator, John Ralfe, an independent pension consultant, suggested the modest value of the Co-op Bank’s operating business is completely swamped by its huge pension liabilities — £800m from the Britannia scheme, plus a share of the £8bn Co-op Group scheme.

He predicted no potential purchaser will be prepared to buy the bank as a whole.

The Co-op Bank declined to comment.

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