The troubled bank uncovered a hole in its balance sheet in 2013 and has explored a number of options in an attempt to boost its reserves or else fall short of the Bank of England’s regulatory capital reserve threshold. Failure to meet the Bank’s requirements could mean the Co-op Bank risks being wound up.
The FT has reported the Co-op Bank is in advanced talks with a group of hedge fund investors; Cyprus Capital Partners, Golden Tree Asset Management, Silver Point Capital and Blue Mountain.
It said: “The proposal, if implemented, would enable the bank to meet the longer-term capital requirements applicable to all UK banks . . . and to continue as a standalone entity. The proposal would also safeguard the bank’s values and ethics.”
This latest deal would see the bank exchange some of its debt for equity at a loss, which would allow it to raise around £450m. The bank is in discussions to raise an additional £250m of new equity.
The bank has made several attempts at raising funds to plug its balance sheet gap. Both Virgin Money and TSB have been reported to show interest in buying the bank but then later stepped away from the deal.
Last month, the bank announced it was looking at a debt-for-equity swap — where investors may swap their bonds for shares at a loss. It was hoped the deal would complete inside a fortnight in order to finalise the process before £400m of senior bonds matured in September.
However, according to the FT’s report, the bank’s pension fund liabilities were proving to be a sticking point for investors, concerned they may end up being left with the bank’s pension responsibilities if any of the group’s companies collapsed.