Sale and leaseback transactions represent an expensive addiction the cost of which does not appear, even now, to be fully appreciated by the Board.
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The PRA works with the FCA and the FRC to improve the quality and usefulness of information disclosed on firms’ safety and soundness… Consistent with that, we will work with the FCA and the FRC to review the extent to which there is scope to extend bondholder influence over banks, with a view to bringing forward recommendations in due course…
— Bank of England (and Prudential Regulation Authority) response to the Final Report of the Parliamentary Commission on Banking Standards
Alternatively… the PRA need look no further than the wreckage, on Monday, of the Co-operative Bank’s plan to deliver the £1.5bn recapitalisation they ordered.
In particular, the recapitalisation plan is subject to finalisation and its implementation is subject to a number of inherent risks. Risks include a failure by bondholders to participate in the Exchange Offer, a legal challenge by affected Bank bondholders to the Exchange Offer and a failure by, or inability of, The Co-operative Group to make its proposed contribution…
Failure to implement the recapitalisation plan may result in regulatory intervention that could reduce or eliminate the value of the equity and modify, reduce or eliminate debt payment obligations.
— ‘Cautionary Statements’, The Co-operative Bank plc Interim financial report 2013
That’s the official version of the Co-op Bank warning to subordinated bondholders to swallow conversion of their debt into equity, in order to ensure its £1.5bn capital rescue. The unofficial version, from the mutual whose model was once lauded by politicians? “There is no plan B”.
Well, the bondholders are starting to think of Plan C. Read more
How’s this for a bank bondholder disclosure? Bear in mind — it’s over 20 years old.
The Commission encourages bondholders, where they are sufficiently concerned, to raise such issues publicly where practical. The PRA should examine the scope for extending bondholder influence of this type…
— ‘Changing Banking for Good’, Parliamentary Commission on Banking Standards
It’s actually well worth reading the full letter from Mark Taber to Andrew Bailey of the Prudential Regulation Authority, the latest protest against the £500m bail-in of subordinated bondholders that’s emerged from the Co-op Bank mess.
Ebenezer Draghi sighed. These bank books would never come out right, and it was Christmas Eve already. As he struggled, the numbers began to swim before his eyes. So many hundreds of billions of euros, so many classes of security, collateral, refinancings… He started to doze. He found himself back a decade, in that glad, confident morning when the world was fresh and new, and the first currency to be entirely illustrated by pictures of fantasy bridges was sprung on a delighted world.
How wonderful life was then! Those perfidious Brits had, predictably, declined to join the euro, but we’d show ’em! The single currency would be the cement that held Europe together, financially as well as symbolically, and would soon threaten the greenback as the world’s premier medium of exchange. Knocking the Yanks off their perch while leaving Britain in the slow lane. What’s not to like? Within a decade the economies of north and south would have converged into one magnificent powerhouse. The euro would have become a deutschemark with a suntan. Read more
Virgin Money and Co-operative Bank are shaping up for a head-to-head tussle to buy the portfolio of 632 branches being sold by Lloyds Banking Group, the FT says. Along with NBNK, the bidding shell headed by outgoing Lloyd’s of London chairman Lord Levene, Virgin and the Co-op were the only bidders who submitted concrete offers for the branches by last week’s deadline – all believed to be towards the lower end of a £2bn-3bn range. Three vaguer approaches also came from NAB, the Australian bank that owns Yorkshire and Clydesdale in the UK, an unidentified private equity firm, and Clive Cowdery, the insurance entrepreneur. Lloyds is expected to whittle down the bids by the end of July.
Structured finance is so flat cap these days…
The Co-operative Bank is delighted to have today successfully launched and priced Silk Road Finance Number One, a GBP 2.5bn prime residential mortgage-backed securities transaction. The transaction re-establishes The Co-operative Bank’s presence in the capital markets following the completion of its merger with Britannia Building Society in August 2009.
The Co-operative Bank, which prides itself on its ethical lending policies, has lost £31.8m on its investments in structured investment vehicles, which have fallen sharply in value as a result of the credit crunch. The writedown of Co-op’s SIV investments to £31m – revealed Thursday in the bank’s annual report – cut its operating profits from £76.3m to £50.4m.