The lender, put up for sale in February, said it is in advanced discussions with a group of existing investors with a view to a prospective raising of equity cash and recapitalisation, thought to be worth about £700 million.
The proposal would give Co-op Bank the ability to meet its long-term capital requirements, avoid it being wound down and allow it to continue as a stand-alone entity.
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Co-op Bank said: “The bank confirms that a majority of the key commercial aspects of the proposal have been substantially agreed between the bank and the Investors. The proposal would also safeguard the bank’s values and ethics.”
It added that, given the advanced nature of the proposal, it has decided to discontinue the formal sale process. The lender added that discussions continue regarding the separation of the Co-op Group pension scheme.
In a financial update, the bank said it is targeting “sustainable profitability” in the medium term and is now targeting a mid-single digit return on equity in 2021.
In March, the bank, which has four million customers, said its ability to meet longer-term UK bank regulatory capital requirements has been hampered by low interest rates and higher than anticipated transformation and “conduct remediation” costs.
Co-op Bank almost collapsed in 2013 after the discovery of a £1.5 billion black hole in its finances and it was forced into a painful debt-for-equity swap. As a result, the loss-making lender is now majority controlled by US hedge funds.
The Co-operative Group owns just 20 per cent of the bank.