UPDATE 1-Co-op Bank investors hire U.S. law firm to fight losses

Tue Jun 25, 2013 12:43pm EDT

* More than 800 retail bondholders engaged in campaign

* Brown Rudnick represented Bank of Ireland bondholders

By Matt Scuffham

LONDON, June 25 (Reuters) - U.S. law firm Brown Rudnick has been hired to represent small investors in Britain's Co-operative Bank who are fighting for a better deal in its 1.5 billion pound ($2.3 billion) rescue plan, sources familiar with the matter said.

The bank's parent, the Co-operative Group, is making bondholders swap their debt at a discount of at least 30 percent for new bonds and equity in the bank, which will be listed on the London Stock Exchange.

The so-called "bail in", which has been used in bank rescues in Ireland, Spain and Cyprus, has angered many of Co-operative Bank's 5,000 retail bondholders.

More than 800 bondholders have signed up to a campaign launched by Mark Taber, an investor who challenged a similar move by Bank of Ireland in 2011. They will be represented by Brown Rudnick, which will work with Taber to try to negotiate better terms, the source said.

Brown Rudnick did not respond immediately to a request for comment. The firm won a reprieve for some of the investors who challenged the Bank of Ireland refinancing in 2011.

Co-operative Group declined to comment.

The investors want Co-operative Group, which is Britain's biggest customer-owned business, to take more of the pain after the bank's restructuring. Many of them lent money to the bank through securities called permanent interest-bearing shares (PIBS), which pay dividends of up to 13 percent a year.

Under the current plan, the Co-operative Group, which runs a range of businesses including supermarkets and pharmacies, will raise 500 million pounds through the sale of its life insurance and general insurance operations. The remaining shortfall will come from a debt-for-equity exchange with the bank's junior bondholders, who will lose a combined 500 million pounds.

Analysts have blamed the bank's problems on its takeover of the Britannia Building Society in 2009. Industry sources say that Britannia, which had lent aggressively on commercial property, was likely to have required a taxpayer bailout had it not been bought by the Co-op.

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