James Moore: Co-op bondholders who lost chunks of capital will not be easily palmed off

Outlook The Co-op Bank's retail bondholders are the big losers in its forced recapitalisation. They're not going to take it lying down. Before anyone underestimates their ability to create problems for the Bank of England's Prudential Regulatory Authority (which they took aim at yesterday) and even the Government, then consider the example of another mutual in the form of Equitable Life.

Its policyholders engaged in a gruelling, and often bitter, uphill battle for compensation over more than a decade after seeing large chunks of their retirement savings going up in smoke thanks to a combination of poor governance, lax regulatory oversight, and government inertia in the face of it all.

Ultimately they won. A partial victory, it's true (they still feel short-changed by the compensation scheme the Government announced) but what they got is a whole lot better than what was at first on offer.

So it can be done. In forcing bondholders into a debt for equity swap, leaving them minority shareholders in a bank controlled by an owner which allowed the ship to run on to the rocks, Andrew Bailey and his Prudential Regulation Authority have found themselves in the middle of their first big scandal. It's a fair bet that the bondholders will be making their lives difficult for a number of months.

However, if their action group is serious, it should look beyond the regulator, and its capital demands (which will ultimately make for safer banks, even if the way they have been imposed is open to serious questions).

The failure of Co-op Bank, like the failure of Equitable, is at its heart a failure of governance and oversight. The Co-operative Group was sold a pup by its bank when the latter bought Britannia Building Society. Its directors failed to see the dangers they were sleepwalking into.

As much as fighting against the decisions that led them to lose large chunks of their capital and their interest payments through having their bonds converted into equity, the bondholders will want to be sure this isn't repeated.

That means setting an example to institutional shareholders in the City (and to the Co-operative Group) which have behaved as the absentee landlords for too long. When it joins the Stock Exchange the Co-op Bank's board should feel the heat of having a vocal shareholder group snapping at its heels.