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Co-op Bank’s £700m rescue deal to end relationship with wider group

The Prudential Regulation Authority (PRA) said it gave the proposals its backing.

The Co-operative Bank has secured a £700 million rescue deal with its hedge fund investors in a move that will spell the end of its historic relationship with the Co-operative Group.

The wider Co-op Group’s stake in the bank will shrink from 20% to around 1% as part of the refinancing package, with the lender also agreeing to separate itself from the wider mutual’s pension scheme.

The Co-op said its “relationship agreement” between group and the bank – including the promotion of lender services to members of the mutual – will “naturally fall away and come to a formal end in 2020”.

But the bank, which has four million customers, will keep the Co-op branding and confirmed it would continue to keep “values and ethics at its heart”.

The deal will give Co-op Bank the ability to meet regulations on long-term capital requirements, avoid it being wound down and allow it to continue as a stand-alone lender.

Dennis Holt, chairman of the bank, said the proposals “will mean that the Co-operative Bank can continue as a viable stand-alone entity”. He added: “It is a great outcome for our customers.”

The lender, which is majority-owned by US hedge funds, put itself up for sale in February but scrapped the plans in favour of raising capital from existing investors.

Under the refinancing package, it will raise at least £443 million in a debt-for-equity swap and a further £250 million in new equity from the hedge funds that hold its bonds and shares.

The Prudential Regulation Authority (PRA) gave the proposals its backing. A 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.”

Trade union Unite said it “cautiously” welcomed the deal.

As part of the deal to separate itself from the Co-op Group pension, which has around 90,000 members, the lender has agreed to pay £100 million over 10 years to the scheme and provide £216 million in up-front collateral.

The Co-op Group said the pension deal will provide security for members.

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