Co-Operative Sees ‘Significant’ Job Cuts as Branches ShutHoward Mustoe and Gavin Finch
Co-Operative Group Ltd., the 150-year-old British mutual, will cut a “significant” number of jobs at its banking unit as it cedes control of the division to creditors.
Co-Operative Bank Ltd. will close about 50 of its 324 branches by the end of 2014, the Manchester, England-lender company said in a statement today. Creditors will own about 70 percent of the bank, which Co-Operative Group doesn’t expect to post a profit before at least 2015.
“The branch network closures have already started,” Co-Operative Group Chief Executive Officer Euan Sutherland told reporters on a conference call today. “There will be significant job cuts,” he said, declining to say how many will be eliminated. The lender employs about 7,800 people.
Co-Operative Group, whose businesses range from supermarkets to funeral parlors, was forced last month to give up control of its banking unit to help plug a 1.5 billion-pound capital hole at the division. Because Co-Operative Group is owned by customers, it couldn’t plug the gap at the banking unit by turning to shareholders in a rights offering, like publicly traded competitors including Barclays Plc.
Initially, Co-Operative Group tried to raise part of the money pledging 1 billion pounds to the banking unit through selling assets and increasing borrowings and asked bondholders to provide 500 million pounds more in a debt swap. Instead, a group of creditors opted to take over control of the bank, which has about 5.5 million customers.
A group owning 48 percent of the lender’s Lower Tier 2 securities have agreed to exchange its bonds for shares and new bonds, and to inject 125 million pounds of fresh equity. The group includes Aurelius Capital Management LP, Canyon Capital Advisors LLC and and Silver Point Capital LP. Co-Operative Group will be left with a 30 percent stake after injecting about 462 million pounds into the bank.
The restructuring will be “the first successful consensual creditor bank bail-in in the U.K., without taxpayer support,” the LT2 group said in a statement today.
The lender today offered its most junior bondholders a sweetener to encourage them to support the plan.
Holders of the bank’s 9.25 percent preference shares and 13 percent perpetual subordinated bonds, securities with a total face value of 170 million pounds, can opt for either as much as 129 million pounds of 11 percent 12-year notes or repayment of principal in 12 equal installments without interest.
The 11 percent bonds, called Final Repayment Notes, will be guaranteed by Co-Operative Group. Owners of 200 million pounds of 5.5555 percent undated bonds will be offered 11 percent bonds due 2023 and guaranteed by Co-Operative Bank.
Holders of those securities who agree to the exchange will be deemed to have voted in favor of allowing the bank to swap or transfer the ownership of any securities left outstanding on the same terms as they received, according to the release. The condition is designed to prevent holdouts blocking the deal.
Regulators pushed Co-Operative Group to close the capital shortfall following the failure of the bank’s bid for more than 600 Lloyds Banking Group Plc branches this year, a deal that would have more than doubled its number of outlets.
Bank of England Deputy Governor Andrew Bailey told lawmakers in July the “main issue” that brought down Co-Operative Bank was the assets it acquired from Britannia Building Society in 2009. Those souring loans prompted Co-Operative Bank to report a fourfold increase in impairments in 2012 and a pretax loss of 673.7 million pounds.