Pensioners 'misled’ by Co-op Bank

The Co-operative Bank reassured pensioners that their investments were safe a month before announcing plans to slash their savings as part of a last-ditch bail-out.

In emails seen by The Sunday Telegraph, a manager at the Co-op Bank told a worried pensioner that “there is no need to be concerned” about a £50,000 investment. The email was sent on May 13, just three days after the ratings agency Moody’s downgraded the bank to “junk” .

osoweary: Who does an honest citizen place their trust in?  Bankers?  Politicians?  Journalists? The NHS?  The BBC?  Teachers?  Lawyers? It's clear that none can be trusted!  A banker's "There is no need for concern" should be taken as a strong contrary signal, just as a PM's "I have complete confidence in my Cabinet minister…"

gottagetoutofhere: The Co-Op and its bank is a disgrace. They lend money to the Labour party and the Co-op group (£4billion ?) and when they get into trouble expect preference shareholders and bondholders to bail them out while still keeping a majority stake in the bank. While all the time concealing the depths of the problems in the bank and paying dividends up to the group. You could not make it up but Co-op did. Put the whole mess into administration would be the appropriate way forward imho.

idontlikecoffee: - "[they] expect preference shareholders and bondholders to bail them out "  Just a small point. Neither the preference shareholders nor the bondholders are being asked to put a single penny of additional new money into the bank.  On the other hand the co-op group are generously offering in the region of£1bn of additional new money, to rescue the bank.  New money which will also prevent those preference shareholders and bondholders losing even more money compared to the bank being allowed to fail. The co-op group are not obliged to do that. It is a very generous offer which is entirely voluntary on their part. When it is the Co-op group providing the new money, it seem to me rather disingenuous of you to claim it is the bondholders who are bailing out the Co-op group.  The facts as I read them, as explained above, suggest quite the opposite. - "Put the whole mess into administration would be the appropriate way forward imho" I think on that point I would agree.  It is looking more and more likely that that is going to be the only viable solution.

Willahelm Christóforos Baillif:  They don't work with Labour; they work with the Co-operative Party who advocate, with the Group, co-operative values. It is the Party who work with Labour, nothing to do with the Group. Guilty by association? Be careful.

DrMoonraker: In any other profession it would be called a scam

kenheart: People with visions of poor pensioners counting their pennies need to think again. The people largely involved are people who could afford to gamble with their money and since they used stockbrokers are not your ordinary saver but high end investors. Trying to paint a picture of poor pensioners is entirely false these are people who knew what they were doing or thought they did. The bonds they bought are similar to shares that can fall with the fortunes of the company and I assume they knew this but went for the high returns they offered.

modestyinperson:  Bond sales raise debt capital which has to be repaid, plus interest, whereas money invested in shares  is equity capital and involves full risk. Under normal circumstances, buying bank bonds can really not be classed as gambling and using a stockbroker really does not make  you  a 'high end investor'. Normal savers buy bonds to run full term and pay interest, and have no interest in speculating on bond prices.

suburban_john: There are different types of bond, each with differing risk/reward profiles. If you don't understand exactly what you're buying you shouldn't be buying it.

fairbobby: Similarly, many of us pensioners invested in another 'low risk', bank, called Northern Rock. After crooked bankers and politicians, (namely Gordon Brown) had their way  they simply passed a law which said that the shares were worth nothing. And we got nothing. Years of careful savings down the chute. The crooks are still rampant, free, and out of gaol where they belong. Does the Northern Rock still exist? Of course it does. The books are fiddled and the directors earn big money and bonuses. Where's Gordon Brown? On world stage with children, making money for charity Brown.

suburban_john: Some uncomfortable facts of life - 1: Never put your money into something you do not properly understand. 2: Never put all your eggs in one basket. Diversification is key. 3: All investments are inherently risky. 4: Never rely on "compensation" - you may not get it.

CrocodileGunnD: There must be grounds for prosecution against this manager if not the bank. People in these positions can't just make stuff up and expect no consequences. The concept of responsibility seems to have passed into history.  

PaulWeighell: I don't see how any organisation can honestly assure anyone that their investment is 'safe' as there is no such thing as 'safe' yet that is what most if not all investors want to be told. Any investment has risk and to be frank, bonds which pay out a reported "5.55% to 13%" in a 0.5% base rate environment, are actually riskier than many would have bondholders believe. Ask yourself how a firm can get "5.55% to 13%" (+their 2.5% overhead) to pay you out? The answer is - with huge difficultly! The error here is that people are simply not being told the truth that even the 'lowest risk' can still result in large losses. All a 'lower risk' means is that on average it could take longer to lose the entire amount compared to a 'higher risk' investment; one can still lose 100% even on the lowest risk level. We can but hope the new government national financial education curriculum will attune kids to better understand risk and not ask for assurance that their investment will be 'safe' or that firms will tell them it is either.

ayshf_m: Please do some research, otherwise you appear to be dopey.  The bonds have nominal coupons, these were the ones they had when they were issued.   This was many, many years ago.  People buying them recently paid far more than face value and hence were not getting 13%.  6.5% ish IIRC before the Co-op came clean.  Co-op PR machine likes to push out these numbers as it makes it appear that those it's about to rob deserve it, which is unfair they did not get the reward for the risk it transpired they were running. Anyway I have slowly reached the conclusion that this is all something a of smoke screen the real problem is that Co-op group itself is bust - gulp.   The PRA almost said as much Andrew Bailey said he did not believe the group was strong enough to bail out the bank.   On the face of it, given group subsidaries owe the bank 4 billion, why not simply refinance 1.5 billion of it with another bank and pay it back to the co-op bank.  Loan book smaller, 1.5 billion hole filled, everyone happy.   I think the reason is chilling, no-one will lend to the co-op group…

TimeToMakeAStand: & yet J P Morgan a BANK managed to make? over 40% profit last quarter that is more than 10% PER MONTH. It really isnt that difficult my derivatives earned me 61% last month

lanthalus: The way bonds work is that they are assigned their rate of return in relation to interest rates when they are issued.  Over time, bonds are bought and sold and their price reflects the interest rate at any particular time. Thus, for example, many of the pensioners impacted by the Co-Op's actions will have bought their bonds at a price which meant that the interest rate they received was much lower (as recently as February, the 13% bonds you refer to were actually paying around 7.6% - very much in line with other bank and company bonds regarded as very safe (AAA in the jargon of the ratings agencies).  If you then take into account levels of inflation (currently in the region of 3%) then the actual real rate of return on this investment is something over 4%. These are the kinds of investment instruments that are widely used to support the pension payments of millions of ordinary people.  The system is supposed to be policed in a way that will provide reassurance and protection - something that clearly hasn't happened here. So you will see that the innocent victims described here would have had no reason to assume that they were buying a risky investment - especially if reassured by a manager from the issuing company in question.

AdAstra100: I understand what you are saying but why is it not the Coupon Rate of 13% and longevity of the bond which identifies the risk?  The liability of the Issuer remains the same despite the fact that the bond market drives increases in the price of the bond and hence brings the yield down to, say, 4%?  I cannot see that the overall risk has dropped even if the new buyer is told that the return locked into is on a par with other bonds; which may only have a coupon rate 2% points higher than their market rate If the above is correct, when an investor buys the bonds, either of own volition or after advice, the contract note should still state the coupon rate of the Bond as the product return will not be adjusted to keep up with the change in market price. I ask not to challenge but only to become wiser.

PaulWeighell: Thanks. I was not aware of the details of these bonds. 4% real return is still unrealistic and as I have explained, the real mathematical risk levels are not what the public assume. The agencies use an algo to calculate risk but it's based on past and/or current data and makes attempt to rate for the future, as indeed no one can, yet buyers often think that is what a rating is. You use the term 'risky' investment when of course all are 'risky' and the fact remains that even the 'least risky' still have a non-zero probability of becoming worthless. The concept that investors are 'innocent' is also flawed as investment carries risk and that needs to be understood by the buyer. If they do not understand that then they are naïve rather than innocent. In this case it is clear that what you define as a theoretical triple A may in fact lose half its value so the reality is not what the public seems to assume.

JohnnyNorfolk: People should know better than to bank at the Co-op. The movement sponsers labour MPs. Need you know more.

seemstome: I am an ex Conservative voter. I must stress the EX. Cameron and his cronies are in the pockets of the Bankers in exactly the same way that Labour are in hoc to the unions. Time for a complete change and none of the three major parties offer it.

meincaff: WSC once wrote "The people are so fiscally ignorant that politicians dare not tell them the truth." If you don't know the difference between junior and senior debt and can't be bothered to find out , tough. The Co-Op Bank has been in a sh*t load of trouble for years. Ultimately you are responsible for your own stuff.though investors might ask what the so-called professional pension fuind managers where doing on all that Mogadon

Bob Evans: Banks and building societies in my view have deliberately gone out of their way to hide the fact that these bonds were high risk. A part of the technique is to have Savings Bonds which are pretty safe and investment bonds which are risky both will simply be referred to as Bonds so the average person is mislead into thinking they are the same thing Another practise used is to offer a guaranteed high interest rate. They forget however to mention the capital is not guaranteed and that in fact is the trick they use to give these high rates in many case your capital erodes in order to maintain the high rate Another favorite tactic nowdays is to have the  XYZ savings account which includes a 2% bonus for one year. Next year they will offer the XYZ issue 2 account no different to the issue 1 account though except this includes a 2% bonus They make a fortune churning these accounts as many do not notice the interest rate has dropped to nothing and they will probanly make you jump though hoops to change to the new account so even if you notice you may loose two weeks interest The only safe approach with banks and mutuals is to assume they will be trying to rip you off

scala_caeli: 40 % cut in the savings of Pensioners…more than the savers in Crete . So much for the great British "it can never happen to us as we are not part of the eurozone"   bull

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