The Co-operative Bank has finalised a £700million rescue deal with investors to stop it being wound down.
The troubled bank put itself up for sale in February but scrapped these plans in favour of raising capital from existing investors, mostly US hedge funds.
After announcing on Monday that talks were in the final stages, the bank today said investors have agreed to swap their debt for equity.
It means the Co-operative Group’s stake in the bank will decrease from 20 per cent to just 1 per cent.
The Co-operative Bank has finalised a £700million rescue deal with investors to stop it being wound down
Investors will pump £443million into recapitalising bonds and will also help the bank raise £250million pounds in fresh equity.
The extra cash will allow the bank to meet government regulations on long-term capital requirements so it won’t have to be wound down.
As part of the deal, the bank has agreed to separate itself from the wider Co-operative Group pension scheme which as £8billion of liabilities.
It said: ‘The board believes that the proposal will enable the bank to thrive as a stand-alone entity, with values and ethics and strong customer service continuing at the heart of its business.’
Co-op Bank almost collapsed in 2013 after the discovery of a £1.5 billion black hole in its finances and it was forced into a painful debt-for-equity swap.
The bank said it was weakened by the Bank of England lowering interest rates
Consequently, the loss-making lender is now majority controlled by US hedge funds Blue Mountain Capital Management, Cyrus Capital Partners, GoldenTree Asset Management and Silver Point.
The Prudential Regulation Authority said it gave the proposals its backing, while the Co-op Group also said it ‘welcomed’ the deal.
A PRA spokesman said: ‘The PRA has accepted the Co-operative Bank’s plan to build greater financial resilience.
‘Supervisors will remain closely engaged with the bank while the actions announced today are taken forward.’
In March, the bank, which has four million customers, said its ability to meet longer-term UK bank regulatory capital requirements has been hampered by low interest rates and higher than anticipated transformation and ‘conduct remediation’ costs.