Co-op Bank halts sale on brink of £700m rescue

The Co-op Bank is to unveil a £700 million rescue deal that will bring an end to more than three years of uncertainty for its four million customers.

On Monday the battered bank said it is no longer for sale, ending talks with a Qatari-Swiss consortium which was the last outside bidder still interested in a deal.

That means the US hedge funds who saved the bank several years ago will now bolster the balance sheet, a source of relief to customers who have stayed loyal, and the Bank of England, which was nervous about the possibility of another bank failure.

Today the Co-op Bank said it is in “advanced discussions” with hedge funds Blue Mountain Capital Management, Cyrus Capital Partners, GoldenTree Asset Management and Silver Point Capital about a deal which is expected to see the funds pump in up to £250 million of fresh capital, with £450 million more in a debt-for-equity swap.

The wider Co-op Group, which has a 20% stake in the bank, is likely to see that stake fall to less than 2%, assuming it does not take part in the swap.

The Co-op Bank said today: “Given the advanced nature of the proposal, the board has decided to discontinue the formal sale process.” A final announcement is likely any day which is also expected to confirm that the Co-op pension scheme will, in effect, be cut in two, with one being looked after by the bank and one by the group.

The Co-op Bank has been under intense scrutiny ever since the then chairman, Paul Flowers, was filmed buying crystal meth and crack cocaine in 2013. He also blamed his use of male escorts on the stress of the bank job.

He was later defrocked as a Methodist minister.

Today’s statement says that the Bank might be in a good enough state by 2021 to start paying dividends to investors.

This year, it reported a loss of £477 million — the fifth in a row but less than the £610 million it lost in 2015.

The Co-op Bank is well known for its ethical stance, which its board said made it “a strong franchise with significant potential” to prospective buyers.

Those buyers — thought to include Virgin Money and CYBG — were said to be keener to pick and choose individual assets than bid for the whole.