Co-operative Bank's £700m rescue package is secured

The wider Co-op Group’s stake in the bank will shrink from 20 per cent to around 1 per cent 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.

National officer Rob MacGregor said: “Unite is pleased that the future of the bank appears protected as it continues to stand alone rather than being broken up and sold off in pieces.

“It is vital to the workforce that the Co-operative’s name, ethics and values will be safeguarded.”