But that's not what Euan Sutherland says. Proudly proclaiming that the Co-Op Group would retain a 30% stake in the Co-Op Bank, making it the largest shareholder, he claimed that the Co-Op Group would remain in control of the bank.
I fear this is more Co-Op Group spin. I've complained before about the less than transparent way in which the Co-Op Group communicates with its stakeholders, which at times has amounted to outright deceit. The fact is that a 30% shareholding is in no way a controlling stake. The Co-Op Group can only remain in control of the bank if the other shareholders allow it to - and in particular, Aurelius and Silver Point. So far, they are playing nice. But customers and other stakeholders should not be fooled. They are by no means as friendly as Sutherland implies.
Aurelius Capital Management (not to be confused with the German private equity firm Aurelius AG) describes itself tersely as "A private investment firm". However, press reports about its activities give a clearer indication of its true nature. Aurelius is one of the hedge funds involved in the long-running legal battle over the restructuring of Argentina's debts. Nor is this the only legal battle in which it is currently involved. From the South California Public Radio's report into the delayed bankruptcy of Tribune, the company that owns the LA Times (my emphasis):
The Tribune bankruptcy, given the sheer volume of the distressed debt, is right in Aurelius' wheelhouse, however. The hedge fund's playbook is to force its Chapter 11 opponents to endure protracted legal combat. Unlike Oaktree, which would wind up owning a piece of the post-bankruptcy Tribune and presumably be able to dictate the future management of the company (making it more of a private-equity player in this case), Aurelius is in it for the money.It seems Aurelius is in the habit of using litigation to force distressed debt holders to pay up. And this press release from Aurelius regarding another of its high-risk investments, IVG Immobilien, shows just how tough it can be when it is on the hunt for money (and note that this situation, like the Co-Op Bank's, involves convertible debt instruments). It is, in short, a predator.
Like Aurelius, Silver Point Capital's website says very little about it:
Silver Point Capital L.P. is a registered investment adviser focused on credit and special situations investments.
The firm, based in Greenwich, Connecticut, was founded in 2002 by Edward A. Mule and Robert O'Shea.But that last line speaks volumes. Mule and O'Shea were formerly at Goldman Sachs, where they were experts in distressed debt and corporate restructuring. And they have become known as aggressive players in the high-yield distressed debt market. Hedge Fund Letters describes Silver Point thus (my emphasis):
Akin to their investing experience at Goldman Sachs, the firm tirelessly seeks complex situations where they can capitalize on their fundamental analysis skills and proactive style of investment management, especially with restructuring and distressed situations.In recent years, Silver Point has profited from high profile failures of financial institutions, including Lehman, MF Global and the Icelandic bank Glitnir. It also made money from the collapse of the Madoff ponzi empire. Currently, nearly half of Silver Point's investments are in financial industries, including equity stakes - often arising from conversion of hybrid instruments. They have history, it seems - and the Co-Op Bank is just their kind of acquisition.
Both Aurelius and Silver Point bought their stakes in the Co-Op Bank in the aftermath of the Moody's downgrade when the price of its hybrid debt securities collapsed. Both are unquestionably in it for the money. And both play hardball to get what they want. So why have they conceded control of the bank to its existing management?
Well, actually it makes sense. Were this a private equity takeover, we would expect to see the management replaced and an immediate restructuring programme put in place. But these are hedge funds, not private equity firms. They don't want to run a bank - they just want to make money from it. And the Co-Op is a rather unusual bank. It has an exceptionally loyal customer base, many of whom have chosen it because of its commitment to "ethical" investment, which at the moment is unique in the market place. It also has strong links with other financial firms such as credit unions and small building societies, to whom it provides payment services. And its link with a mutual makes it popular not only with customers but with government. None of this would be lost on Aurelius and Silver Point. For them to run the bank directly would destroy its unique selling points, making it difficult for it to compete in a cut-throat financial services marketplace and eliminating any likelihood of a return to profit any time soon. This is certainly not what these companies want. So it is in their interests for the Co-Op Group to remain apparently in control of the Co-Op Bank.
But make no mistake, Sutherland and his fellow Board members will be on a very short leash. They must return the Co-Op Bank to profitability within a very short time - otherwise the hedge funds are likely to turn nasty. They will not hesitate to asset-strip the Co-Op Bank if the management fails to meet the profitability targets that they expect. And as between them they DO have a controlling stake, they can unquestionably do this. Sutherland's statement was made with a gun to his head.
The Co-Op Group may appear to be in control of its bank, but in reality it is a puppet. And the puppet masters are sharks.
Under the Radar - Coppola Comment
Stand By Your Bank - Coppola Comment
Co-Op Group to lose control of Co-Op Bank - Robert Peston, BBC
Co-Op Bank bondholders set to seize control - FT (paywall)
The Co-Op mess, and bondholder ethics - FT Alphaville
"This bank will remain the Co-Operative Bank" - FT Alphaville