The Co-operative Bank has confirmed that it is in “advanced discussions” with existing investors about injecting more capital after warning earlier this year that it will fall below the regulator’s threshold.
The loss-making bank said in a stock exchange announcement this morning that the talks with a group of investors involve an equity capital raise and a liability management exercise – a debt for equity swap.
The deal would mean some investors exchange their debt for equity in the bank at a loss, in order to raise about £450m, according to bankers briefed on the plan. The bank must also raise about £250m-£300m in new equity.
The bank said that it is still in ongoing talks over the separation of its pension fund from its parent Co-operative Group’s scheme, which is serving as a hurdle for investors. The pension fund arrangement currently means the bank must shoulder a share of the Co-op group’s £8bn pension liabilities. The Co-op group still has a 20 per cent stake in the bank.
Talks come after the lender revealed at the start of the year that it is set to fall below the Prudential Regulation Authority’s minimum capital requirements over the next few years.
Alongside discussions with existing investors, Co-op said it is still pushing ahead with a formal sale process. However, bankers briefed on the plan said the huge pension fund liabilities have been a key concern for prospective buyers.
Last week it emerged that the bank had been approached about a possible takeover by a Qatari company, Al Faisal Holding, working with a Swiss investment group called Interritus.