Co-operative Bank Places Pension Fund As ‘Preferred Creditor’ To Boost Its Capital

Plagued by huge pension deficits eating away at its capital and profits, the Co-operative Bank has decided to create a new pension scheme that would reduce its consumption of capital to pay for pensions. Dealings involve changing the entire structure of the pension scheme by placing the pensions fund as a top priority through its “preferred creditor” class — which puts it ahead bondholders and unsecured depositors.

In the event things turn for the worst, the pensions fund would receive its continuous funding despite Co-operative Bank’s failure. According to Financial Times, small businesses fear they would stand behind creditors to be paid should the bank be liquidated.

Recently, Co-op has put itself up for sale due to immense losses with the pensions trouble being part of the issue. The bank is concentrating on improving its financial position. The bank is also looking to float itself through the stock market or divide itself for other banks to float and retain client loans and financial management.

To help its sale attractiveness, the Co-op Bank completed a major IT transformation through the help of IBM. One complaint about Co-op was its slow service and slow transition to information technology systems.