MORE details of the Co-operative Bank’s troubles will be unveiled on Thursday when it posts its first set of figures since being thrown into turmoil after revealing a mammoth hole in its finances.
Parent company the Co-operative Group will point to more turmoil in its banking arm as it attempts to convince investors that a punishing £1.5bn fund raising is the only way to plug its balance sheet shortfall.
The mutual’s new boss Euan Sutherland was given a baptism of fire when, within days of taking over in May, the bank’s debt was downgraded to junk by ratings agency Moody’s and it uncovered the huge hole in its balance sheet.
The Co-op’s half-year figures are expected to show more deep losses triggered by impaired commercial property loans from its disastrous acquisition of the Britannia Building Society.
These sent the group plunging to a £673.7m loss in 2012.
The Co-op is expected to slash the value of the bank to zero in coming months and could also reveal hundreds of job losses when it updates on the painful restructuring later in the autumn.
Its £1.5bn rescue needs the backing of investors through a “bail-in”.
Bondholders ranging from pensioners to US funds must accept losses on their investments if the deal is to progress.
The bail-in will raise £500m of capital by offering bondholders shares via an “exchange offer”, resulting in a stock market listing for the group’s banking arm.
But the turnaround has been complicated by US hedge funds seizing control of some of the bank’s loans –- giving them a strong bargaining position in the bail-in talks and potentially forcing even higher losses on lower-ranked retail bond investors.
The Co-op is also sharing the pain by selling its insurance businesses and raising new debt.
But it must also bolster its finances by slashing costs, with some of this expected to come from job losses among the bank’s 10,000 staff.
The Co-op considered dumping the bank into the State’s resolution scheme for failed lenders, but decided against this damaging move, which could have wiped out bondholders completely.
The black hole in the Co-op’s capital reserves largely stems from commercial property loans acquired through the merger with Britannia in 2009.
Mr Sutherland has also commissioned an independent probe, headed by former Treasury mandarin Sir Christopher Kelly, into the Britannia deal and failed takeover of more than 600 Lloyds bank branches. It will report back in May.
In July, Mr Sutherland wrote to about two million members to reassure them over the mutual’s future and defend a painful rescue of the banking arm.
Acknowledging investor fury over the “bail-in” of the Co-operative Bank – in which bondholders must help plug a £1.5bn hole in its finances – Mr Sutherland said the plan will avoid further damaging asset sales and is a better option than a taxpayer bailout.
Mr Sutherland emailed 1.9 million members in July after a turbulent three months which saw the collapse of its deal to buy more than 600 branches from Lloyds Banking Group, warnings from ratings agency Moody’s over its health and a £1.5bn capital shortfall.
The former B&Q boss said last month that, while the group is struggling through difficult times, it remains “fundamentally strong” and is now well-placed to tackle future challenges.