The realization that deposits (or their mutual equivalent) are nothing more than loans to highly levered institutions may begin to dawn on a European (or in fact global) depositor base.

The European "Bail-Ins" Will Continue Until Morale Improves

Submitted by Tyler Durden on 06/17/2013 12:16 -0400

• Reality

While we have been told vehemently that the Cypriot deposit confiscation was not a template, yet another European nation is embarking on an until-now-considered-safe asset class to recapitalize its banks. As The Telegraph reports, pensioners and other retail investors in the Co-operative Bank are facing massive losses under a GBP1.5 billion rescue plan for the ailing mutual as investors and the bank's parent would make "a joint contribution" to the bank's recapitalisation, without any help from taxpayers.

Holders of GBP370 million of permanent interest bearing shares (PIBS) issued by the Co-op and Britannia Building Society before its takeover are expected to have their coupons cancelled, making them effectively worthless. The group notes there could be an outcry among retail investorsbut argued there was little choice because of where they sat in the capital structure since the PIBS were the mutual equivalent of stocks (which would have been wiped out if the bank was public).

However, as one analyst notes, "the bail in represents a profound change in the business model of the Co-op bank," as the typical owner of these PIBS are pensioners attracted by the steady guaranteed income. It seems the days of hoping for a bail-out are over and perhaps that is why European financial credit has been underperforming - as that reality has yet to strike equity holders.

It seems credit markets get it...

Via The Telegraph,

Pensioners and other retail investors in the Co-operative Bank are facing massive losses under a £1.5bn rescue plan for the ailing mutual.

...

Holders of £370m of permanent interest bearing shares (PIBS) issued by the Co-op and Britannia Building Society before its takeover are expected to have their coupons cancelled, making them effectively worthless.

About £60m of PIBS are held by members of the public, paying interest annually of between 5.5pc and 13.5pc a year. PIBS are typically owned by pensioners, attracted by the steady guaranteed income.

Roughly 7,000 retail investors will be affected and the bank said that, on average, they held less than £1,000 in these bonds.

...

The insider conceded the group was aware there could be an outcry among retail investors but argued there was little choice because of where they sat in the capital structure. PIBS are the mutual sector's equivalent of shares, which arguably could have been completely wiped out had the bank been listed.

...

“The bail in represents a profound change in the business model of the Co-op bank - from being an institution owned by members, to a bank which has shareholders. This change is likely to clash with the co-operative ethos of the bank and, in the longer term, this might undermine what has made the Co-op attractive to its staff and customers,"

...

The realization that deposits (or their mutual equivalent) are nothing more than loans to highly levered institutions may begin to dawn on a European (or in fact global) depositor base.

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