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

Tyler Durden's picture


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 investors but 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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Mon, 06/17/2013 - 12:21 | 3665065 NoDebt
NoDebt's picture

Take that, Granny!  Didn't see that coming did ya?  Bank still alive, you..... broke.  Sorry about the vacation plans with the grandkids. 

Mon, 06/17/2013 - 12:36 | 3665112 Banksters
Banksters's picture

A human being who revolts but loses will die a human. But, to live as a slave means to die as a slave.


Mon, 06/17/2013 - 17:32 | 3665980 BigJim
BigJim's picture

These were bondholders, not depositors.

Wake me up when they start exchanging bank deposits for bank equity.

It won't happen for amounts under the deposit guarantee, in the UK at least; they'll just get the BoE print to cover any shortfall.

Mon, 06/17/2013 - 12:41 | 3665128 Scro
Scro's picture

Y'all want to meet at Chotchkie's for lunch.

Mon, 06/17/2013 - 13:17 | 3665234 Never One Roach
Never One Roach's picture




Dear Granny:

Thanks for your contribution to the Bankers Bonus Ball. You have enabled one more starving banker the gift of a 7-course dinner with the generous contribution of your retirment savings.



His Majesty' Honorable Browning Hastings Throckmorton III, CEO, Big Bank


PS: In gratitude for your contribution, you will be receiving one [1] large jar of Westmister Lube and one [1] Sherlock Holmes towel, the little face towel, that is.


Mon, 06/17/2013 - 13:24 | 3665251 Scro
Scro's picture

Change that to a Spider-Man towel.

Mon, 06/17/2013 - 14:28 | 3665449 IMACOINNUT
IMACOINNUT's picture

Change that to a Spider-Man towel.


By all means we will substitute a spider-man towel. Therefore we have debited your account for a small one time fee (for the towel) in the amount of 38 -- please enclose your check to cover these cost plus the VAT of 48 and the overdraftfee of 78. 

SINcerely, her MAjesTY

Mon, 06/17/2013 - 12:23 | 3665068 CitizenLame
CitizenLame's picture


Mon, 06/17/2013 - 12:24 | 3665077 fonzannoon
fonzannoon's picture

I am listening to CNBC discussing gas prices and assuring everyone that it's only when we get to $5 a gallon that the economy should sit up and take notice of all that deflation that is not deflating.

Mon, 06/17/2013 - 12:30 | 3665093 SheepDog-One
SheepDog-One's picture

They've got to be lowballing the gas price story, if it's pushing $4 here it's got to be high everywhere.

Mon, 06/17/2013 - 12:36 | 3665111 Panafrican Funk...
Panafrican Funktron Robot's picture

Really, crude above $80 is a problem for "growth".  But I don't think "growth" is the actual goal for policymakers.

Mon, 06/17/2013 - 12:26 | 3665078 NoDebt
NoDebt's picture

"paying interest annually of between 5.5pc and 13.5pc a year"

That can't be right.  That's gotta be the coupon, not yield.  If that's yield, its blowing junk bonds into the weeds, which should tell you something right there.

Mon, 06/17/2013 - 14:01 | 3665366 Telemakhos
Telemakhos's picture

Well, actually they are junk bonds.  Moody's junked them (six notch cut) in May just before the CEO quit.  Ironic quotation from that story:

"In light of today's news, we would like to reassure customers and members that we haven't sought nor do we need government support," the Co-operative tweeted.

The PIBS that pay so much interest are deeply subordinated debt; they're getting equity stakes in the newly publicly-listed bank in exchange for their debt, much like was promised to some of the Cyprus creditors, at least in one of the thousand versions of the clean-up deals (I, to be honest, lost track of all those and don't remember if anyone got stock in exchange for their pet lap-giraffe snack funds or not).

Mon, 06/17/2013 - 14:33 | 3665470 NoDebt
NoDebt's picture

Thanks for the backround on that.  Much appreciated.  They definitely didn't need government help, that part was true at least.

Another group of bank customers getting shoveled junk and being told it's safe.  Must be a European thing.  A "template" of how to treat depositors (I just invented that phrase myself right now!).  Glad it could never happen here.

Mon, 06/17/2013 - 15:02 | 3665595 bigfire
bigfire's picture

Don't get cocky with that "european thing".  You think the T-Bill are safe?

Mon, 06/17/2013 - 12:28 | 3665084 Dr. Engali
Dr. Engali's picture

Doesn't " investing" go hand in hand with the possibility of loss?

Mon, 06/17/2013 - 12:53 | 3665149 max2205
max2205's picture

Market traders up 40% in 9 months...savers pounded into the sand....where is Alice?

Mon, 06/17/2013 - 12:29 | 3665088 adr
adr's picture

It's all bullshit. As long as you are fine living in fantasy land, you'll feel fine. Like a drugged up mental patient, you don;t realize you are in the asylum, until the drugs wear off.

QE, bailouts, lowered margins, subdued interest rates, are the drug keeping all the rats calm and worry free. Cut off the drugs and they'll start eating each other.

For all those on welfare at the top and bottom, the fantasy seems like it can go on forever.

Those that can't or won't take part in the fantasy, are getting absolutely crushed. Some decided to stop getting stepped on and drank from the punch bowl and are now blissfully unaware of the impending doom, deciding its better to be high on hopium before death, rather than see the train coming.


The idiot box with the fake titted overdone makeup whores says, "Buy stocks and join in the fun, jump into real estate because prices are skyrocketing, don't worry about jobs because you won't need one."

Who the fuck believes this shit?

Mon, 06/17/2013 - 12:32 | 3665098 SheepDog-One
SheepDog-One's picture

Yep exactly. It's all good, well as long as you've bought into the fairy tale and living for now in the dream world.

Mon, 06/17/2013 - 12:29 | 3665089 sunny
sunny's picture

European markets solid green today.  If there is a major problem, a whole lot of folks didn't get the memo.  Just saying.


Mon, 06/17/2013 - 12:34 | 3665103 SheepDog-One
SheepDog-One's picture

The matrix is holding up pretty well this morning, they just needed to install a few program patches before matrixmarket opened this morning to correct the 'glitches' from Friday.

Mon, 06/17/2013 - 12:37 | 3665114 RafterManFMJ
RafterManFMJ's picture

Hey! There's a black swan! Wait, there it goes again...

Mon, 06/17/2013 - 12:35 | 3665109 disabledvet
disabledvet's picture

and now you know why Frenchmen bury their gold in their backyard! If this is the "good side" of banking...what's the bad side Europe? "tooth prying"? i mean what isn't for sale over there right now? the security of the Euro zone itself?

Mon, 06/17/2013 - 12:30 | 3665094 Creepy Lurker
Creepy Lurker's picture

"...And - its gone!"

Seriously, I hope no one on here at least is still silly enough to keep any substantial amount of money in a bank.

Mon, 06/17/2013 - 12:34 | 3665105 Panafrican Funk...
Panafrican Funktron Robot's picture

Yeah, but they called it a "liability management exercise", so it's not a bailout (or, in this case, bail-in).  At least not in nomenclature terms.  

Mon, 06/17/2013 - 12:45 | 3665137 Winston Churchill
Winston Churchill's picture

Ass raped is ass raped.

Wonder how many are getting a second serving after being screwed in Cyprus.

Has  to be some overlap.Second time is  fool on me.

Mon, 06/17/2013 - 17:26 | 3665968 BigJim
BigJim's picture

Reminds me of stories of refugees of the Hiroshima nuclear bombing fleeing to stay with relatives in... Nagasaki.

Mon, 06/17/2013 - 12:45 | 3665136 bondman1
bondman1's picture

They now own Subordinated zero coupon convertables! I'm sure the bank will provide an firm bid for pence on the pound! They'll convert them back to full face once the holders are fully fleeced!

Mon, 06/17/2013 - 13:05 | 3665198 ZeroPoint
ZeroPoint's picture

Kiss that 401K good bye. It's coming.....

Mon, 06/17/2013 - 13:06 | 3665203 Devotional
Devotional's picture

guys, trust me with this one: NO ONE gives two hoots about what is happening. People do NOT want to understand or believe what is going to happen to their deposits. No one cares, just ask anyone in Europe if they have taken measures - people will look at you as if you are a madman.

I was cyprused in 2008 ... I woke up back then :)

Mon, 06/17/2013 - 13:14 | 3665232 Winston Churchill
Winston Churchill's picture

Just look at it as a once in a lifetime opportunity.

You can't wake the sheep up, use your brain to save youself.

The gene pool is about to be drained, someone pissed into it.

Mon, 06/17/2013 - 15:42 | 3665707 Creepy Lurker
Creepy Lurker's picture

Exactly right, Winston. I've given up trying to wake the sheep. They don't want to drag their dead asses out of bed. Its better to just leave them.

Follow the reputed motto of Anne Boleyn, "Me And Mine."

Mon, 06/17/2013 - 13:09 | 3665213 Schmuck Raker
Schmuck Raker's picture


Was it fraud? Or maybe the Brits are worse at English than us 'Muricans.

Mon, 06/17/2013 - 13:09 | 3665214 Never One Roach
Never One Roach's picture

"What's good for Big Bankers is good for You!"



Mon, 06/17/2013 - 13:10 | 3665223 sbenard
sbenard's picture

In this era, many in Europe and America now believe that Government IS god!They worship government as their provider, rather than their protector!

Interesting that the first of the Ten Commandments deals with that:

"Thou shalt have no other gods before me!"

Mon, 06/17/2013 - 13:13 | 3665231 youngman
youngman's picture

And gold and nothing...I am stupid....I would think people..even a small % would figure out that their money in banks is not safe.....I guess we just do not learn....I think Asians know what I am talking about....Westerners seem not to or to ignore it....the financial weight of the world is changing....the Western world is losing

Mon, 06/17/2013 - 13:19 | 3665244 JPMorgan
JPMorgan's picture

Annnnd it's gone...

Thanks for banking with the Co-op we hope to fleece again in the future, have a nice day.

Mon, 06/17/2013 - 13:34 | 3665278 benbushiii
benbushiii's picture

In the fractional reserve banking system, the banks take in deposits, then leverage those deposits 10:1 to make loans where the spread in their favor is 300 to 700 bps.  They are basically using depositors' money to create loans where they earn the huge spreads.  But when those loans they have created with your money go bad, then your money is at risk above the depositor guarantees.  The banks are essentially another form of hedge fund where you are guaranteed a portion of your money back below a certain threshold, but they get to bet and create money from your deposits.  Good luck when the loans they have made are worth nothing, and the 10:1 leverage now needs $10 for every dollar in deposits taken in to make you whole!


Mon, 06/17/2013 - 13:41 | 3665292 yogibear
yogibear's picture

THe US fed keeps pumping until the US dollar crashes. Then it's panic time.

Mon, 06/17/2013 - 13:56 | 3665353 smacker
smacker's picture

It is worth pointing out that this new concept of "bail-ins" to replace "bail-outs" has NEVER ever been discussed and voted on in the British Parliament by one single elected MP. Seemingly, no new law was required, so the government just went ahead and did it. To distance themselves from flak, they handed over authority for case-by-case implementation to the BoE/commercial banks!

Meaning that this new plan - cutely named 'bank resolution' - has been signed off by Chancellor Osborne and PM Cameron, with the BoE doing all the legwork and co-ordinating with its sisters in the Treasury, Regulatory bodies and of course the criminals-in-chief themselves: the commercial banks.

And of course when this govt's predecessor - the one-eyed Scottish Windbag: Gordon Brown - poured countless £billions of taxpayers' money into the banks in 2008 ->, HE never once went to Parliament to seek its permission.

And we think we live in a democracy? ho-ho.

Mon, 06/17/2013 - 14:19 | 3665408 ebworthen
ebworthen's picture

“The bail in represents a profound change in the business model of the Co-op bank..."

I think he meant to say:

"The bail in represents a profound change in the social contract of Western Civilization..." but his salary and bonus at the expense of pensioners kept him from being honest.

You are either a parasite who feeds off the responsible, the responsible citizen that works and saves only to be bled, or an irresponsible citizen who feeds off of the greater Ponzi in relative poverty.

The middle class productive society of responsible savers is being killed by hordes of human ticks, fleas, leeches, flukes, lice, and tapeworms.

Mon, 06/17/2013 - 15:41 | 3665703 Navymugsy
Navymugsy's picture

My landlord banks at the Limassol co-op bank and I remember him gloating when Laiki and Cyprus Bank went under. I'll have to check in with him when I get home from vacation...

Mon, 06/17/2013 - 16:21 | 3665832 cognus
cognus's picture

If your investments are not registered, certificated in your name, they're not yours.

USA unelected masters have already signed off on the same sort of plan.  all it waits is a torch to one big institution. the sub-line is correct: having holdings in a bank or brokerage house is a 'loan' - an asset on the balance sheet to be appropriated as they see fit, or in the case of insolvency [technically, there's a long list of insolvents] the triumvirate dictates that the prey be liquidated and the booty be hidden in a bridge entity.

Mon, 06/17/2013 - 17:55 | 3666032 pcrs
pcrs's picture

No lobby with the government, not bailout

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