The Co-operative Bank has announced a new £1.5bn rescue plan to address balance sheet deficiencies.
Capital will be generated through a “joint contribution” from both the group and investors, as bond holders will be offered shares in the bank. The deal will result in a stock market listing for the Co-operative Group.
Euan Sutherland, chief executive of The Co-operative Group, said the plan is “good news for The Co-operative Group, The Co-operative Bank, and its customers.”
He explained: “We have put in place a detailed and comprehensive solution to meet the current and longer-term capital requirements of the Bank. In doing so we have agreed a plan to ensure its future.
“The Co-operative Group, which clearly regards the Bank as a core part of the Group, is providing extra capital. Investors in the Bank’s subordinated capital securities are also being asked to support the Bank at this crucial time by participating in a wider exchange offer.”
Under the terms of the rescue plan, the Co-operative Group – the bank’s parent – will issue a new £500m bond, paying about 6.5pc annually, to buy out junior creditors.
Bond holders may lose out in the short term, although they will “own a significant minority stake in the Bank, will then allow them to share in the upside of the transformation of the Bank.”
Concerns have been raised over Co-op Bank’s capital following the collapse of its proposal to buy 632 Lloyds Banking Group branches as part of the Project Verde deal. It also announced a £662m loss in March 2013.