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| Co-op Group 'considered' resolution process for bank | Co-op Group 'considered' resolution process for bank |
| (about 1 hour later) | |
| The Co-operative Group considered admitting its struggling bank into a Bank of England "resolution" procedure, the BBC's Robert Peston has learned. | The Co-operative Group considered admitting its struggling bank into a Bank of England "resolution" procedure, the BBC's Robert Peston has learned. |
| Earlier this year the group was ordered to raise £1.5bn of capital to bolster Co-op Bank's financial resilience. | Earlier this year the group was ordered to raise £1.5bn of capital to bolster Co-op Bank's financial resilience. |
| At that stage the Co-op mulled placing the bank in a "resolution" process run by the Bank of England that would have imposed losses on the bank's lenders. | At that stage the Co-op mulled placing the bank in a "resolution" process run by the Bank of England that would have imposed losses on the bank's lenders. |
| But the group decided the move could do too much damage to the Co-op brand. | But the group decided the move could do too much damage to the Co-op brand. |
| Instead, it came up with a compromise plan to raise £1bn of the capital - which banks are required to hold in order to protect savers and depositors from losses - and another £500m by forcing losses onto holders of the Co-op Bank's debt. | Instead, it came up with a compromise plan to raise £1bn of the capital - which banks are required to hold in order to protect savers and depositors from losses - and another £500m by forcing losses onto holders of the Co-op Bank's debt. |
| The plan, which has been accepted by regulators, would enable the Co-op to retain control of its bank, instead of handing it over to the Bank of England. | The plan, which has been accepted by regulators, would enable the Co-op to retain control of its bank, instead of handing it over to the Bank of England. |
| But putting it into place may prove a complicated and lengthy procedure. | But putting it into place may prove a complicated and lengthy procedure. |
| Depositors protected | Depositors protected |
| Owners of the bank's debt and preference shares will still be asked to cancel some of the money owed to them, in return for new ordinary shares in the bank. | Owners of the bank's debt and preference shares will still be asked to cancel some of the money owed to them, in return for new ordinary shares in the bank. |
| "Co-op Group's management regarded heaping losses on the holders of subordinated debt and preference shares as fair, given that, if Co-op Bank were to go into resolution, these investors would almost certainly incur much bigger losses," said our business editor. | "Co-op Group's management regarded heaping losses on the holders of subordinated debt and preference shares as fair, given that, if Co-op Bank were to go into resolution, these investors would almost certainly incur much bigger losses," said our business editor. |
| The bank's bondholders - including holders of its subordinated debt - must give their formal consent to the deal, in the face of the potentially worse alternative of a full resolution process over which they would have no say. | The bank's bondholders - including holders of its subordinated debt - must give their formal consent to the deal, in the face of the potentially worse alternative of a full resolution process over which they would have no say. |
| If all goes to plan the refinancing should be completed by mid-November. | If all goes to plan the refinancing should be completed by mid-November. |
| There is concern that if the process drags on, depositors might become nervous and start leaving the bank. | There is concern that if the process drags on, depositors might become nervous and start leaving the bank. |
| The problems at Co-op Bank stem from its purchase of the Britannia Building Society in 2009, which turned out to have large amounts of bad debt. | The problems at Co-op Bank stem from its purchase of the Britannia Building Society in 2009, which turned out to have large amounts of bad debt. |
| The situation was made worse when the regulator imposed more demanding requirements on all banks for the amount of capital they have to hold in reserve. | The situation was made worse when the regulator imposed more demanding requirements on all banks for the amount of capital they have to hold in reserve. |
| The Co-op is setting up an independent investigation of how the losses came about and why they were missed for so long. |