The Co-op's plan involves a 'bail-in' as opposed to the usual 'bail-out' using taxpayers' money. The bank will also end up on the stock market as a result.
Bondholders will find find their bonds in the bank will be converted into shares so changing their holding of debt in the Co-op into actual ownership. According to the bank this will mean that although the bondholders will take a hit early on in the process, in the end they will be able to benefit as the bank recovers.
The Bank's chief executive, Euan Sutherland, said on the BBC Radio 4 Today programme that the company's ethos will not be changed. In the past the company was wholly owned by the Group but now that ownership will be split, however the majority of the shares will still be owned by the Co-op so they should still be able to exercise full control. But, as Robert Peston points out "Many will argue that the culture and practices of the bank are bound to change once its shares are owned by commercial investors – even though the Co-op Group will retain a controlling majority stake in the bank."
The bail-in has received the blessing of the Bank of England and the Prudential Regulation Authority and a BoE spokesman said:
“The PRA’s current assessment is that the Co-operative Bank needs to generate an additional Â£1.5bn in Common Equity Tier One capital in order to absorb potential losses over coming years. We will hold the Co-operative to the delivery of its plans. In relation to the Co-operative Bank this action will deliver the Financial Policy Committee’s recommendation to the PRA in March regarding the capital position of the banking system. Â The PRA will publish details on 20 June setting out the final conclusions of its capital exercise for all of the 8 major UK banks and building societies.”
Responding to the Cooperative Bank rescue plan, Laura Willoughby MBE from bank customer campaigning website moveyourmoney.org.uk said:
"Coop Bank should not surrender its ethical values as part of its rescue plan. Members of the Cooperative group need to show the power of benefits and mutuality by demanding assurances that the bank will continue to prosper ethically and responsibly or it will become 'just another bank'.
"It's great news for customers and the economy that they have found a solution to their problems without resorting to the public purse. As the biggest ethical bank they provide choice and demonstrate that banking can be different. If a solution does threaten their mutual and ethical status then we call Coop group members to step-up and question the bank about what this really means."
Image by David Wright [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons