Co-op Bank’s rescue looms

THE Co-operative Bank has dropped plans for a sale as it closes in on a £700million financing deal with its existing investors.

The loss-making lender, just 20 per cent owned by the mutual Co-op Group after a previous rescue by US hedge funds, put itself up for sale in February.

A consortium of Swiss and Qatari investment companies emerged as a potential buyer, while parallel negotiations continued with investors which control most of its bonds and shares over boosting its capital reserves to satisfy Bank of England regulations.

Those talks with its existing backers, which observers had argued was the more likely route to a deal despite concerns the bank’s ethical mandate could be compromised, have progressed to the extent that the bank has taken down the “for sale” sign.

The hedge fund arrangement is expected to include up to £250million of fresh capital being pumped into the business, with £450million more through a debt-for-equity swap.

Talks are continuing over the separation of the bank’s pension fund from the Co-op Group’s scheme.

The Co-op Group has reportedly ruled out providing new funds to the joint pension scheme, while the trustees have been arguing for the bondholders to fund a new bank pension scheme.

The Co-op Bank, led by chief executive Liam Coleman, pictured, said: “The proposal, if implemented, would enable the bank to meet the longer-term capital requirements applicable to all UK banks and to continue as a standalone entity. “The proposal would also safeguard the bank’s ethical values and ethics. A majority of the key commercial aspects of the proposal have been substantially agreed between the bank and the investors.

“Discussions with respect to the separation of the Cooperative pension scheme into sections for which Co-op Group and the bank have respective responsibility are advanced.

“Given the advanced nature of the proposal, the board has decided to discontinue the formal sale process.”

The bank, which has 4 million customers, sank £477million into the red last year, its fifth straight year of losses as it rebuilds from the discovery of a £1.5billion black hole in its balance sheet which brought it to the brink of collapse in 2013 following a disastrous merger with the Britannia Building Society.