June 26, 2017 / 7:13 AM / 2 years ago

Britain's Co-op Bank says nears rescue deal with investor group

LONDON (Reuters) - Britain’s Co-operative Bank 42RQ.L said on Monday it was close to agreeing a financial rescue package with leading investors that would shore up its capital base and end months of uncertainty about its future.

A sign hangs outside of a branch of The Co-operative Bank in London, Britain, February 13, 2017. REUTERS/Hannah McKay

The Co-op Bank, which provides banking services to almost 4 million retail and small and medium sized enterprises, said it was in advanced talks with a group of existing investors over a deal which includes a recapitalization.

A deal would allow the bank to meet the longer term capital requirements demanded by the regulator and to continue as a stand-alone entity, while safeguarding its values and ethics, it said in a statement.

The bank, which put itself up for sale in February, nearly collapsed in 2013 after losses from problem real estate loans and has been struggling to rebuild its financial health.

Co-op said it was discussing its capital raising options with the UK’s Prudential Regulation Authority.

A majority of the key commercial aspects of the deal had been “substantially agreed”, it said, and it was in advanced talks over how to manage the group’s pension liabilities, it said in response to media reports of an impending deal.

“Discussions are continuing between the parties, including on other key matters, with a view to agreeing the final aspects of the Proposal and a further announcement will be made in due course,” it said.

As a result, the Co-op said it had decided to discontinue a formal sale process.

Financial support for the bank’s portion of Co-operative Group’s 10 billion pound pension scheme has been one of the sticking points of the deal. Co-operative Group currently has a 20 percent stake in the bank.

However, the positions of the bank’s investors and the pension scheme trustees on the issue were now “largely aligned”, a source familiar with the matter said.

In an update on its financials, the Co-op said it now targeted an improved capital position, sustainable profitability in the medium term and a mid-single digit return-on-equity in 2021.

Reporting by Simon Jessop and Carolyn Cohn; editing by Louise Heavens and Jason Neely

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