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U.K. Regulator Rebuffs Co-Op Bank Bondholders’ Call for Review

U.K. Regulator Rebuffs Co-Op Bank Bondholders' Call for Review
Co-Operative Bank's capital has been depleted by soured consumer and commercial real estate loans stemming from the purchase of Britannia Building Society in 2009. Photographer: Simon Dawson/Bloomberg

The Prudential Regulation Authority rebuffed calls from a group of Co-Operative Bank Plc bondholders for a review of the U.K. lender’s restructuring plan, telling them how the company raises money is up to its management.

Co-Operative Bank said last month it will swap some debt for equity as part of a plan to raise 1.5 billion pounds ($2.3 billion) of capital after the failure of its bid for 632 Lloyds Banking Group Plc branches exposed the deficit. The bank has about 7,000 bondholders with holdings of 25,000 pounds or less.

Mark Taber, organizer of a group of bondholders, wrote on July 9 to Andrew Bailey, the PRA’s chief executive officer, asking for a review of the lender’s plan. His group is one of at least three seeking better terms for bondholders in the restructuring.

“The PRA has always been clear that the way in which that extra capital was to be raised was a matter for the Co-Operative Bank itself,” Bailey said in a letter to Taber on July 23 seen by Bloomberg News.

Bailey declined to comment on why the Co-Operative Bank’s auditor, KPMG LLP, indicated that the bank was well-capitalised in accounts published in March. He reiterated regulators told the lender it should have raised capital in 2011. He declined to give additional details, citing confidentiality agreements.

Sarah Bailey, a spokeswoman for the PRA, didn’t immediately respond to a request for comment. A spokeswoman for KPMG also declined to immediately comment.

Regulator’s Approval

Taber said he has responded to Bailey, saying the terms of the lender’s perpetual subordinated bonds require consent from regulators for repurchase.

“It is therefore completely within the power of the PRA to influence the terms of any offer made to holders of the bank’s retail bonds,” Taber wrote.

Co-Operative Bank’s capital has been depleted by soured consumer and commercial real estate loans stemming from the purchase of Britannia Building Society in 2009. Loan impairments more than quadrupled to 468.7 million pounds in 2012, the company said in March. The bank had a pretax loss of 673.7 million pounds in 2012.

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