Friday, June 21, 2013

A model for future bank bail outs that avoids taxpayers forking over money

Handling of shaky Co-op Group could serve as a model for future bail outs, to henceforth be called "bail-ins", UK's Co-op Bank agrees to £1.5 billion 'bail-in' rescue plan
Co-op Group, which runs supermarkets, pharmacies and funeral services, will retain a majority stake in the Co-op Bank, which has 4.7 million customers. Sources said bondholders are likely to end up with at least a quarter of the bank's shares.

Sutherland said he was confident a "good proportion" of bondholders would support the move, given that coupons on their debt will be canceled making them effectively worthless. If they refused, the bank would face the threat of nationalization.
Analysts have blamed Co-op Bank's problems on its takeover of the Britannia Building Society in 2009.

Industry sources say Britannia, which had lent aggressively on commercial property, was likely to have required a taxpayer-bailout had it not been bought by the Co-op.

Co-op said it would hive off toxic assets worth about 14.5 billion pounds into a 'bad bank,' most of which are from Britannia, as part of a restructuring.
Like Bank of America and Countrywide it really shows how incompetent bank management can be to not understand how much liability they are "investing" in.
Co-op said the bail-in plan will generate 1 billion pounds of new capital this year and 500 million pounds in 2014. This includes a debt-for-equity exchange with the bank's subordinated bondholders.

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