Co-Operative Bows to Bondholders in Revising Bank Rescue Plan

The Co-Operative Group Ltd. bowed to bondholder pressure and said it will revise its plan to plug a capital shortfall its banking unit as the BBC reported it may lose control of the division to its creditors.

“We have been engaging with different bondholder constituencies and seeking to balance the requirements and expectations of these parties,” Manchester, England-based Co-Operative said in a statement today. “Many elements of any recapitalization plan will be materially different” to its initial proposal in June.

Co-Operative Group, which traces its roots to Britain’s 19th-century industrial north, is under pressure from British regulators to plug a 1.5 billion-pound ($2.4 billion) capital shortfall at its banking operation by the end of 2014. The lender said in June it would try to raise 500 million pounds by asking bondholders to exchange subordinated debt for new equity and senior debt, a plan that would leave Co-Operative in control its banking unit.

Co-Operative Group may now lose control of the lender after bondholders rejected the initial proposal, the BBC reported on its website today, without saying where it obtained the information. A new plan may be made public on Oct. 28, the BBC said. A Co-Operative spokesman declined to comment on the report.

Co-Operative Bank’s 500 million euros ($684 million) of 2.375 percent senior bonds due in October 2015 gained 1.06 cents in the euro to 95.787 cents, the highest since May, according to data compiled by Bloomberg.

Separately, the bank said it will set aside an additional 100 million pounds to 105 million pounds to cover costs such as compensating clients who were wrongly sold payment-protection insurance. The lender has about 4.7 million customers.

To contact the reporters on this story: Howard Mustoe in London at hmustoe@bloomberg.net; John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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