Co-op Bank to Raise New Capital

Co-operative Bank PLC (COG.YY) on Monday said it will raise 1.5 billion pounds ($2.36 billion) in new capital from a debt-for-equity exchange and asset sales as its new management team seeks to ward off a collapse.

The bank, which is part of funerals-to-supermarkets mutual conglomerate the Co-operative Group Ltd., said around GBP1 billion of the new capital will be in place by the end of this year, after an exchange planned for October of its subordinated bonds for a mix of equity and new bonds.

Co-op Bank didn't give full terms of the offer, but it currently has around GBP1.3 billion in subordinated debt. Holders of the debt will be asked to tender their bonds for less than face value, it said, without giving firm figures.

A further GBP500 million is to be raised in 2014 from the sale of its general insurance business and loan portfolio sales, the bank said.

As part of the transaction, Co-operative Group will transfer a "significant minority equity interest" to the current bondholders. The Bank of England's Prudential Regulation Authority that oversees the country's banks said it has signed off on the plans.

"This announcement is good news for The Co-operative Group, The Co-operative Bank, its customers and our members. The Co-operative Group, which clearly regards the bank as a core part of the group, is providing extra capital. Investors in the bank's subordinated capital securities are also being asked to support the bank at this crucial time by participating in a wider exchange offer. This solution, under which they will own a significant minority stake in the bank, will then allow them to share in the upside of the transformation of the bank," said Euan Sutherland, chief executive of the Co-operative Group.

Write to Margot Patrick at [e-mail]

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