Co-operative Bank is poised to unveil a £700m rescue deal with its US hedge fund owners that will avert a collapse of the loss-making lender.
It is understood that the bank could announce as early as tomorrow that it has secured financing through a debt-for-equity swap and an injection of new equity by the hedge funds, reports the Telegraph.
It would draw a line under months of speculation about Co-op Bank’s future that had sparked concerns the Bank of England might be forced to step in and wind-up the troubled business.
The lender, which has about 4m customers, lost £477m in 2016 in what was its fifth consecutive year in the red and warned in February that its deteriorating capital position had forced it to put itself up for sale.
However, as well as looking for a buyer, it has also been working on an alternative rescue with its existing investors.
Earlier this week, it dropped the sale plans in favour of a pursuing a deal with the hedge funds, including Blue Mountain Capital Management and GoldenTree Asset Management, which already own bonds and shares in the business.
In 2013, the hedge funds stepped in to bailout the lender after it discovered a £1.5bn black hole in its finances. It is unclear which funds are taking part in the fresh rescue this week.
While a deal could be unveiled tomorrow, a source cautioned that an announcement could be delayed.
Co-op Bank directors were said to be meeting tonight to hammer out the final terms of the rescue, which is likely to see the Co-operative Group’s stake in the lender shrink from 20pc to a negligible level.
A key sticking point in rescue negotiations have been separating the bank from the wider Co-operative Group pension scheme, which has about 90,000 members.
The bank also moved to reassure customers earlier this week that a deal with the hedge funds would “safeguard” its values and ethics.
Co-op Bank stands apart from its high-street rivals because its lending is governed by a strict ethical policy which forbids it from providing financial services for activities that include animal testing of cosmetics.
The policy is seen as central to the bank’s appeal to many of its customers, who have stayed loyal to the business through years of financial difficulty and a 2013 sex and drugs scandal involving its former chairman.
A Co-op Bank spokesman declined to comment on the potential deal, which was first reported by Sky News.
Bank of England governor Mark Carney has reiterated his expectation that the bank will raise interest rates soon.
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