Co-operative Bank in 'advanced' talks over rescue package

Hedge funds which own most of the bank’s equity are reported to have pledged more than £200 million to the Co-op Group pension scheme

Hedge funds which own most of the bank’s equity are reported to have pledged more than £200 million to the Co-op Group pension scheme

The Co-operative Bank has confirmed that it is in advanced talks with existing investors about a possible rescue, amid reports that the Co-operative Group is concerned about a mooted £200m pension deal.

The US hedge funds are proposing the extra support for the pensions scheme in exchange for removing the Co-Op Bank's guarantee commitment, making the lender more attractive to a future buyer.

But it is understood that disagreements over funding its pension liabilities may scupper a £700m ($895m) rescue of the ailing lender.

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A further update, will be made "when appropriate", according to the Co-op.

Now the Co-Op Group pays GBP20.0 million in to the scheme annually, and the Co-Op Bank contributes GBP5.0 million, with both sides guaranteeing the future of the scheme should the other collapse.

Meanwhile, the bank said that as well as exploring potential recapitalisation it was also proceeding with its sale process.

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The Co-op Bank added that the formal sale process continues, and the bank continues "to fully discuss both the sale process and the capital raise options" with the Prudential Regulation Authority, which it said has welcomed the sale and capital raise process. It had previously priced its stake in the business at £140m.

Sources said that the Co-operative Group, which now owns a 20 per cent stake in the bank, was demanding a more robust financial package to protect the 90,000 members of their joint retirement scheme.

Co-op bank, which has four million customers, reported an annual loss of £477m in March, bringing its cumulative losses over the last five years to more than £2.7bn.

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