Co-op Bank agrees rescue deal

The Co-operative Bank has agreed a £700m rescue with its lenders but the deal will leave the Co-operative Group with just a 1% stake in the bank.

The beleagured bank, which was first put up for sale at the start of the year before scrapping the sale process earlier this week, will raise £250m of new equity from existing investors and £450m from bondholders swapping into equity.

The capital injection means the bank will avoid being wound down by the Bank of England but it will also leave retail bondholders with less than half of their original investment and reduce the Co-operative Group’s stake in the bank from 20% to 1%.

As part of the deal, institutional bondholders will have to convert £426m of bonds into equity, which will amount to a 17% stake in the bank.

Retail investors with less than £100,000 of bonds will receive only 45% of their original investment back in cash. The bank will pay out a maximum total of £13.5m to retail bondholders.

The bank is also raising £250m of equity from hedge fund investors through a newly established holding company, which will amount to a 68% stake.

It will retain its name and ethical policy as part of the agreement struck with the hedge funds.

The bank also said it would to separate its pension fund from the Co-operative Group’s scheme, which has £8bn of liabilities.

Chairman Dennis Holt said: “The board is pleased to confirm this proposal for a recapitalisation which will mean that The Co-operative Bank can continue as a viable stand-alone entity, with values and ethics at its heart.

“Our investors share our commitment to building our distinctive ethical franchise and see strong future growth potential for The Co-operative Bank.”

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,” it said.