UPDATED: Co-op Bank in advanced talks over rescue package

File photo of a Co-operative Bank sign . Photo:  Nick Ansell/PA Wire
File photo of a Co-operative Bank sign . Photo: Nick Ansell/PA Wire
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The Co-operative Bank has said that it is in advanced discussions with existing investors over a rescue package.

The bank said on Monday that the talks centre on a “prospective equity capital raise and liability management exercise”.

The lender added that discussions are also ongoing regarding the separation of the Co-op Group pension scheme, which would clear the path for a takeover.

Reports had surfaced over the weekend that the struggling lender is close to announcing a £700 million deal that would see it avoid being wound down.

“The bank notes recent media speculation and confirms that it is in advanced discussions with a group of existing investors with a view to a prospective equity capital raise and liability management exercise,” the lender said.

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.

Co-op Bank almost collapsed in 2013 after the discovery of a £1.5bn black hole in its finances and it was forced into a painful debt-for-equity swap.

As a result, the loss-making lender is now majority controlled by US hedge funds.

The Co-operative Group owns just 20 per cent of the bank.

The lender added: “The bank continues to fully discuss both the sale process and the capital raise options with the Prudential Regulation Authority (PRA), which has welcomed the sale and capital raise process.”

In February, the board of the Co-op Bank hoisted a “For Sale” sign over the lender as concerns mounted over its capital position.

At the time, the bank said: “The board is commencing a sale process, something always considered a potential outcome of the turnaround plan, alongside considering other options to build capital and meet the longer-term capital requirements

applicable to all UK banks.”

In February, the bank also confirmed it would post a “significant” loss for the year to December 31 after warning in January that its common equity tier one capital ratio - an industry measure of financial strength - will fall and remain below 10 per cent in the medium term.

Much of the £1.5bn hole was linked to losses on commercial property loans stemming from its ill-fated merger in 2009 with the Britannia building society.

The Co-operative Bank provides high street and internet banking, current accounts, mortgages, savings accounts, credit cards and loans.

It can trace its roots back to 1872, when the Co-operative Wholesale Society established a Loan and Deposit Department, 28 years after the foundation of the Rochdale Equitable Pioneers Co-operative Society.

In 1968, it changed its name to The Co-operative Bank.

In 1992, it introduced its ethical policy which focused on customers’ concerns. The policy includes a commitment to oppose oppressive regimes, animal testing on cosmetics, the fur trade and blood sports.

It conducts customer polls and is also independently audited every year, to make sure its ethical stance still aligns with customers’ values.

The Co-op Bank has branches in York, Barnsley, Bradford, Doncaster, Huddersfield, Hull, Leeds, Rotherham, Sheffield and Wakefield.

Ian Beaumont of KPMG

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