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Alternative Market Briefing

Hedge fund creditors lead the way at Co-op Bank rescue

Monday, October 21, 2013

Beverly Chandler, Opalesque London:

Financial news in the UK was dominated this morning by the update that The Co-Operative Group seems increasingly unlikely to retain control of its 'ethical’ high street bank, Co-Op Bank, despite a £1.5bn ($2.39bn) rescue plan. Opposition came from creditors, led by hedge funds, Silver Point and Aurelius, advised by investment bank Moelis. The funds and other creditors own 43% of "lower-tier-two-capital" bonds and other superior bonds.

Reporting for the BBC, business editor Robert Peston, said the Co-op Group hopes the bank's co-operative ethos can be protected. The bank hit problems with losses, bad loans and an expensive IT project and was finally scuppered by the compensation costs for mis-selling PPI insurance, estimated to stand at £100m, which were greater than it had expected.

In addition, The Financial Times this morning reported that The Co-Op Group was considering a compensation fund for any retail investors who would be put in financial difficulty by a proposed restructuring of its banking arm’s bonds.

Peston reports that institutional investors, led by hedge funds, favoured a plan in which their bonds would be converted largely into Co-op Bank shares, ......................

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