The ethical Co-operative Bank has been approached about a possible takeover by a Qatari company working with a Swiss investment group.
Al Faisal Holding and Interritus are involved in discussions over a possible acquisition of the lossmaking UK lender, according to two people briefed on the proposal.
However, they played down the likelihood that the approach would succeed.
One of the people said a more viable option than selling the bank was the Co-op’s bondholders pumping in the extra capital required to bolster the lender.
The latest development, first reported by Sky News, is part of a protracted process aimed at shoring up the Co-op Bank’s balance sheet, after it announced at the start of 2017 that it would fall short of the regulatory capital threshold over the next few years.
The bank is aiming to strike a deal of some form in the next few days that is likely to involve a debt-for-equity swap, where some investors swap their bonds for shares at a loss.
The Co-op is planning to raise about £450m from the debt-for-equity swap. But it must also raise about £300m in new equity.
Bankers have said four companies — Cyrus Capital Partners, GoldenTree Asset Management, Silver Point Capital, and Blue Mountain — are the most likely of the existing tier-two bondholders to pump in more capital.
If the Co-op Bank does not strike an agreement to raise about £300m, it could ultimately lead to an orderly wind-down of the lender, testing the Bank of England’s resolution powers.
Certain hurdles stand in the way of a sale. Pension experts point to the bank’s pension liabilities and its joint involvement with the Co-operative Group’s scheme.
The bank has £800m of liabilities from the Britannia pension scheme after it acquired the building society in 2009, plus a share of the £8bn Co-op Group scheme.
The Co-op Bank declined to comment. Al Faisal Holding and Interritus could not be reached in time for comment.