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| Co-op Bank unveils rescue deal to plug £1.5bn hole | Co-op Bank unveils rescue deal to plug £1.5bn hole |
| (35 minutes later) | |
| The Co-operative Bank has unveiled a rescue plan to tackle the £1.5bn hole in its balance sheet. | The Co-operative Bank has unveiled a rescue plan to tackle the £1.5bn hole in its balance sheet. |
| Most of the capital to be used to plug the hole will come through a "bail in" - a process where bond holders will be offered shares in the bank. | Most of the capital to be used to plug the hole will come through a "bail in" - a process where bond holders will be offered shares in the bank. |
| The bank said the plan meant both investors and the group would make "a joint contribution" to the bank's recapitalisation. | The bank said the plan meant both investors and the group would make "a joint contribution" to the bank's recapitalisation. |
| "This is good news for the Co-operative Bank," said bank chief Euan Sutherland. | "This is good news for the Co-operative Bank," said bank chief Euan Sutherland. |
| Speaking to BBC Radio 4's Today programme, Mr Sutherland said: "This is the best solution for all concerned." | |
| The plan does not involve any help from taxpayers, but is likely to mean bond holders will lose out in the short term. | |
| However, the bank says that through exchanging their bonds for shares they will gain a "significant minority stake" in the bank, which will allow them to "share in the upside of the transformation of the bank". | |
| The Co-operative Group - the Co-operative Bank's parent - is also providing extra capital. | |
| The Co-op said it had agreed the plan "in full" with the City's new regulator, the Prudential Regulation Authority. | |
| Regulator test | |
| In April, the Co-op Bank cancelled a plan to buy 631 bank branches from Lloyds Banking Group. | |
| That was followed two weeks later by the ratings agency Moody's downgrading the bank's debt to junk status. | |
| The agency warned the bank may need "external support" if it could not strengthen its balance sheet. | |
| At the time, the Co-op said it had a "strong funding profile" that was "significantly above the regulatory requirements". | |
| But the bank admitted there was a "need to strengthen our capital position in light of the broader economic downturn and the pending introduction of enhanced regulatory requirements". | |
| Most of Co-op Bank's problems stem from bad loans associated with its takeover of Britannia Building Society in 2009. | |
| The agreement with Co-op is the first test of the new City regulator, the Prudential Regulation Authority, since it assumed responsibility from the Financial Services Authority in April for regulating the banks. Part of its mandate is to ensure that the banks won't have to be bailed out from taxpayer money again. | |
| The Co-operative Group, parent of Co-op Bank, was founded in 1863. It has more than six million members and employs more than 100,000 people. |