The Co-operative Bank will live to fight another day after it agreed a £700mln rescue deal with its US hedge fund owners.
The investors have agreed to swap their debt for a stake in the lender, drawing a line under speculation that it might be about to wound up.
The capital injection means the Co-op Bank will continue as a standalone entity after it abandoned plans to put itself up for sale.
The Bank of England’s Prudential Regulation Authority said it had accepted the deal.
The bank, which has around four million customers, posted a loss of £477mln in 2016 – the fifth year in a row that it found itself in the red.
Its struggles can be traced back to an aborted attempt to buy 632 branches from Lloyds Banking Group PLC (LON:LLOY), which revealed a £1.5bn black hole in its finances.
Co-op group stakes falls to 1%
The debt-for-equity swap means that the Co-op Group’s stake in the bank will fall from 20% to about 1%.
Despite the wider group only having a small stake, the bank said its “name, brand and commitment to cooperative values…will continue unaffected”.
“The board is pleased to confirm this proposal for a recapitalisation which will mean that the Co-operative Bank can continue as a viable standalone entity, with values and ethics at its heart,” said chairman Dennis Holt.
“It is a great outcome for our customers. Our investors share our commitment to building our distinctive ethical franchise and see strong future growth potential for the Co-operative Bank.”