Co-op bank market abuse

Readers of this board might like to know that if you have suffered losses resulting from relying on public information the Co-op bank disseminated which they knew to be false e.g. the 2012 accounts then you can make a claim against the Co-op bank for loses.

I think it is time for everyone affected here to take action and make a claim against the Co-op bank for any losses they have resulting from the false market in the listed securities CPBB/C/A that the Bank and its directors allowed. I have written to the bank's head of compliance 'jane.cliff@cfs.coop' and to 'niall.booker@cfs.coop' as well as the fca who can be found at 'Catherine.Batchelor@fca.org.uk' and 'market.abuse@fca.org.uk'

The letter I wrote is posted below. It would be in everyone's interests to send in a similar claim at this point. It is clear from all the evidence from the TSC hearings and elsewhere that the Co-op have wilfully misled investors and we have a claim against losses suffered.

Please act in a similar way now:

Head of Compliance
The Co-operative Bank p.l.c.,
P.O. Box 101,
1 Balloon Street,
Manchester, M60 4EP


Dear Sir/Madam
I am writing to make a formal claim against the Cooperative Bank PLC for losses suffered (as detailed in the table below) with respect to false claims and statements that the bank made about its capital position and general trading state leading up to its recent interim announcement dated 29th August where the bank revealed serious capital problems, very large write downs of due to a failed IT system, and large impairment charges on both its core and non-core loan books which has led to the decline in the traded price of these securities and thus my loss.
Security Purchased Position Paid Price Loss
XXXXXXXXXXXXXXXXX

Total Loss £ XXXXX

At the time the securities were purchased I relied on due diligence I carried out on the capital positioning of the bank primarily, but not limited to, its 2012 Annual Financial report and following conference call which for reference I copy here http://www.co-operative.coop/Corporate/PDFs/The-Co-operative-Bank/2012/Bank_Financial_Statements_2012.pdf and here http://www.co-operativebankinggroup.co.uk/corp/images/21stMarch2013.MP3.
In particular taking extracts from this report and associated conference call we see
• The Director’s assessed the Trading and Banking Groups separately as they are separately funded [ 2012 financial statement].
• The Trading Group had sufficient resources to operate within the level of its current facilities, including compliance with all financial covenants and concluded that the going concern assumption remains appropriate [ 2012 financial statement].
• In the Banking Group the going concern assumption was carefully considered due to the heavy losses incurred from exceptional charges – write down of asset values. They concluded the Bank’s capital position remained acceptable with a period end core tier one position of 8.8% (31 December 2011: 9.6%) [2012 financial statement].
• The Board recognised the need to build the capitalisation of the Bank to provide increased resilience and capacity for future growth and took action in early 2013 to improve the position to 9.2%. Current forecasts indicate that the Bank’s capital will remain above regulatory requirements over the period of the Plan. However, in response to the impact of new Basel III regulations and the expectation of a prolonged economic downturn, we are reviewing our business with the intent of improving our profitability and capital position. Without management action, compliance with regulatory capital requirements would come under pressure. Bank liquidity has been reviewed by considering the latest liquidity forecast for 2013–2015, as well as the stress testing results from period end for internal liquidity assessment, together with the Bank’s compliance with its regulatory required levels. The evidence from stress testing as at period end shows that sufficient liquidity levels can be maintained under the most severe scenarios. This is also documented in the Individual Liquidity Adequacy Assessment (ILAA). [ 2012 financial statement].
• Adequate capitalisation can be maintained at all times even under the most severe stress scenarios, including the revised FSA ‘anchor’ stress scenario.[ 2012 financial statement].
• Our submissions to the FSA in the period have shown that the Bank and its individually regulated operations have complied with all externally imposed capital requirements [ 2012 financial statement].
• Expected year end CT1 of 8.8% (pro forma basis) [conference call].
• Working hard towards project Verde which they expect to complete [conference call].
• Residual balance sheet values for IT equity were proper and reflected confidence that in the event of failure of Project Verde full use could be made of this work in future. [conference call]
• When asked about further impairments response in Q&A was that the bank could not say for sure but felt confident in loan book now after impairments taken due to 88% loan cover.
• capital ratios at the bank were at acceptable levels & were expected, if anything, to improve,
• Measures were being taken further to strengthen Banking's balance sheet by injecting the sales proceeds of the two Insurances businesses and the eventual proceeds of the non-core loan books.
Further to the March statement there were various other statements made by the bank and its directors which I list below which further gave me confidence that the bank was on a sound footing at the time. These include a video interview given by Len Wardle 19th July 2012 here http://www.co-operative.coop/membership/video/.
Q) any deal this size and complexity must carry with it a degree of risk, how does the board satisfy themselves that these risks can be properly managed?
A) i make no apologies that we took such a long time to come to a conclusion on this deal, almost a year really and therefore we have gone into the deal in finite detail...the audit committee... looked at all the due diligence...to satisfy itself it was sound...the risk committee... looked at all the risks...stress testing, economic scenarios for the future...so it’s been a very detailed process...totally unlike how Lloyds got themselves into their difficulties in the first place when they took on HBOS almost overnight and Santander took on Bradford & Bingley...we have spent considerable time and effort in looking at this in detail to satisfy ourselves it’s the right thing for our members and for our businesses
Q) what happens next in terms of regulatory and board approval for the deal?
A) ...crucially the regulator has to say they do not object to the transaction so the FSA is very important...we’ve kept them up to date, as have Lloyds and they have not intervened, so one might expect them to have intervened if they were not happy with what was taking place




I will now go on to show by a series of numbered points of evidence that the state was known at the time to be quite different from the statements given by the bank and many of the claims made were absolutely false. In effect the bank created and maintained a false market in these listed securities that led to the loss I have suffered which leads to my claim against the bank.

1) July 2012 Andrew Bailey is interviewed by Jesse Norman MP at the Treasury Select Committee(TSC)
The following transcript from the TSC shows that Andrew Bailey had real worries about the level of capital at the Co-op bank and had expressed concerns to them that there was a capital problem in the second half of 2012 as explained in the Q&A session below:
Q97 Jesse Norman: Thank you for that. Mr Bailey, moving on to a potentially related issued, did the PRA advise the Co- operative Bank to discontinue its bid for the Verde branches because of the capital shortfall that you discovered?

Andrew Bailey: We never approved the Co-op bid for the Verde branches. We never approved the bid, let me be clear on that.

Q98 Jesse Norman: You never approved the bid?

Andrew Bailey: No. Can I just give you a little bit of history, and that might help? Going back to the outset of that whole process, which was about two years ago, when it was first an idea, I said to the board of the Co-op Bank that in my view—and I have to say it was a view without having done the stress test that was subsequently done—they needed to raise capital.

Q99 Jesse Norman: This is two years ago?

Andrew Bailey: Yes.

Q100 Jesse Norman: You said to the Co-op, pre-stress test, they needed to raise capital?

Andrew Bailey: Yes. Towards the end of 2011 we made it clear to them that—and I will use these words carefully—it was not clear to us that the Co-op Banking Group had the ability to transform itself successfully and sustainably into an organisation on the scale that would result from acquiring the Verde assets. Then we set out five things, the five areas that they would have to deal with: capital, liquidity-risk management, integration, governance and management. That is obviously a pretty full set, as you might say.

Q101 Jesse Norman: Roughly everything.

Andrew Bailey: Roughly everything. I made it clear to them at that point—the tail end of 2011—that they had to make that clear to Lloyds.

Q102 Jesse Norman: This was 2011. This is a year before the bid gets pulled?

Andrew Bailey: Yes. Obviously I do not have a gateway to go to another bank and says, “Let me tell you something about another bank”, but what I did do was to say to Co-op, “It is your duty to inform Lloyds of this”.

Q103 Jesse Norman: You would regard your instructions as being pretty authoritative?

Andrew Bailey: Yes, and they did. I believe they did. I have no reason to doubt that they did. I have evidence to suggest that they did, by the way, so I do not doubt that.

In his evidence to the TSC Andrew Bailey did not name who at the Co-op he addressed his concerns in 2011 but Reuters have reported as follows:

Sources with knowledge of the matter said Andrew Bailey, then director of UK banks and building societies at the regulator, raised concerns over the deal, codenamed Project Verde, in an email dated Dec. 20, 2011, which was sent to Co-op executives and forwarded to Bischoff.

Bailey outlined key areas that would need to be addressed before regulatory approval could be granted, including Co-op's management, computer systems, funding and capital. He said Co-op had yet to produce a feasible capital plan.

"Our current view is that it is not clear Co-op has the ability to do that," Bailey said in the email, sent to Co-op's then-chairman Len Wardle and chief executive Peter Marks.

http://www.reuters.com/article/2013/07/16/lloyds-coop-idUSL6N0FM3MX20130716



2) The FCA investigation into allegations of Market Abuse

The FCA are currently investigating claims of market abuse relating to a false market in the listed securities. There are many claims that support this and provide evidence that a false market was in existence including:-

• The previous formal communication [from the FSA/PRA] related to the setting of Individual Capital Guidance (ICG) and Capital Planning Buffer (CPB) dated 15 January 2013, which stated that the CPB should be held exclusively in Core Tier 1 capital. This letter also indicated that in order to meet the revised CPB the Bank would have to raise additional capital.

• Euan Sutherland, the new Chief Executive of the Co-operative Group, began discussions with the PRA on the need for additional capital in the Bank in early May 2013.

• The PRA acknowledged that uncertainty about the level of further losses had prompted the commissioning of a skilled person's review (under s.166 powers) in May 2013 and that the PRA was still reviewing the impact of this report on its assessment.

3 Lord Myners call for an investigation into claims made by the Co-op group regarding statements made which created a false market in the listed securities.
Lord Myners spoke in the House of Lords as follows:-
To ask Her Majesty’s Government whether they are currently investigating, or have plans to investigate or cause to be investigated, whether employees of the Cooperative Group or Cooperative Bank gave assurances to retail savers and investors in the bonds and preference securities of the Cooperative Bank that might have misrepresented the capital status of those investment instruments and constituted the making of a guarantee by the Cooperative Group.

To ask Her Majesty’s Government whether the Cooperative Group or the Cooperative Bank or their directors and employees are or will be investigated for allowing a false market in securities issued by either body; whether the Financial Services Authority’s role will be investigated in respect of the same issue; and, if so, by whom.

3. The Bank’s email correspondence with other bond holders. This carried on until late May 2013 as shown in the following exchange with a worried pensioner who was told 'there is no need for you to be concerned':
The sequence of events was as follows:
On 13th May 2013 I wrote an email addressed to the following at the Co-op: Jennifer Long; Lauren Hoult; and Catherine Turner. In this email I wrote:

Dear Madams
I am a member – 633174910114089236 - of the Co-Operative Group and my wife and I had (until a few days ago) around £50,000 invested, via ISAs, in the Co-Op Bank’s perpetual subordinated loan stock. We are now extremely fearful that we are about to lose all of this very important retirement savings nest-egg, the income from which we rely upon. How can you reassure us? As I said, we are very, very worried.

We believed the corporate statements from the bank over recent years that all was going well and were pleased to believe its slogan: “Good with money”.

Yours faithfully


To this, Lauren Hoult, of the Co-operative Bank, replied on 13th May 2013:

Dear Mr ,
Many thanks for taking the time to contact us, we understand that recent headlines will have caused you some concern.
I hope that you are to some extent reassured that we are not seeking and have not sought a government bailout. I would also like to reassure you that our funding remains strong and we have high levels of liquidity, significantly above regulatory requirements. In addition, all customer deposits are also protected up to £85,000 under the financial services compensation scheme.
As I work in the press team, I have referred your query on to our customer services so that it can be addressed in full, but did just want to acknowledge your email in the meantime and thank you for getting in contact.

Kind regards, Lauren Hoult
The worried pensioner was then contacted by email by Andy Hammerton also on 13th May 2013 with the following email:

Dear
Many thanks for your email.
There is no need for you to be concerned. We are strongly funded and high levels of liquidity, which are significantly above the regulatory requirements.
We do acknowledge, like the rest of our banking sector peers, the need to strengthen our capital position in light of the broader economic downturn and the pending introduction of enhanced regulatory requirements, and we have a clear plan to drive this forward throughout the coming months. There is a dedicated number for queries about the Bond, number 0871 384 2304 if you've any further questions. You can also discuss them with a financial advisor / broker about selling / holding etc.I hope this provides some reassurance. If you've any further questions please do not hesitate to get in touch.
Andy


4) Jesse Norman’s evidence to the TSC relating to evidence he has received on the claim of a false market.
Jesse Norman MP gave evidence at the TSC where he revealed that there was now an enormous dossier of evidence that the Co-op bank’s capital position was being mis-portrayed up in addition to the evidence I have listed above.

5 Letter from Andrew Bailey head of PRA to Mark Taber quoted by Bloomberg
In this letter Andrew Bailey explains that the PRA has been in discussions with the Co-op since 2011 about steps that the bank must make to raise capital.

Co-Operative Bank Plc had an initial plan to bolster capital rejected by regulators, contributing to a delay in a second recovery program being agreed with the customer-owned bank, according to the Prudential Regulation Authority.
U.K. regulators decided Manchester, England-based Co-Op Bank may need capital in 2011 and waited until “there was greater visibility about the possible outcome” over its intention to buy branches from Lloyds Banking Group Plc (LLOY), PRA Chief Executive Officer Andrew Bailey said in a letter to bond investors seen by Bloomberg News today.
http://www.bloomberg.com/news/2013-10-04/co-op-bank-s-initial-plan-to-boost-capital-was-rejected-by-fsa.html

Conclusion
In conclusion it is clear that at the time I purchased my bonds and preference shares the Co-op bank were misleading the market with respect to their capital position, future impact of failed IT project and future loan impairment projections. At that time they clearly knew of their precarious position and had had warnings from the regulator but instead of disclosing this to the market they instead re-assured investors with false statements.
As head of compliance at the Co-op bank you have a regulatory duty to address this claim and make payment for any losses I have suffered. I expect to hear from you very shortly. I have been contacted by law firms who have previously acted for PPI claimants. I would prefer not to have to recover losses using this type of legal action but I am willing to do so if required.
Regards