Coop Bank secures £700m rescue deal

The debt-for-equity swap with hedge funds means that the Co-op Group’s stake in the bank will fall from 20 per cent to about 1 per cent.

Under the refinancing package, the bank will raise at least £443 million through the debt-for-equity swap and a further £250 million in new equity from the hedge funds that hold its bonds and shares.

The lender, which is majority-owned by US hedge funds, put itself up for sale in February but scrapped the plans in favour of raising capital from existing investors.

The plan will also see the bank separate its pension fund from the Co-operative Group’s scheme, which has £8bn of liabilities.

The Bank of England’s Prudential Regulation Authority said it had accepted the plan to return the bank to a firm footing.

“Supervisors will remain closely engaged with the bank while the actions announced today are taken forward. Implementation is subject to certain regulatory approvals,” said the PRA, which is responsible for supervising the UK’s banks and insurance companies.

The Co-op also said that the relationship agreement between the group and the bank, covering the promotion of bank services to members of the wider business and other matters, “will naturally fall away and come to a formal end in 2020”.

It added that it “is supportive of the plan and intends to vote in favour of the capital raising”.

The Co-op Bank has been been struggling for four years since an abortive attempt to buy 632 branches from Lloyds revealed a £1.5bn hole in its finances.

Dennis Holt, chairman of the bank, said the proposals “will mean that the Co-operative Bank can continue as a viable stand-alone entity”.

He added: “It is a great outcome for our customers.”