By Mark Kleinman, City Editor
The Co-operative Group confirmed the outline of a £1.5bn rescue plan for its banking arm on Monday as its management faced intense criticism over losses facing thousands of small investors.
Warning that creditors would face the loss of their entire investments unless they backed the restructuring proposals, the Co-op Group said it would inject £462m into the Bank, with a further £125m coming from a group of predominantly US hedge funds.
More than 50 Co-op Bank branches, totalling 15% of its network, will be closed in the first phase of the overhaul of the banking arm, it said.
Under the plans, small investors in Co-op Bank bonds will be offered a choice between receiving their existing annual payments over 12 years but with the loss of a capital sum, or lower annual payments but with a future capital amount. Either alternative will leave them facing substantial losses.
Euan Sutherland, the group chief executive, admitted to Sky News that the Co-op had "stood firmly behind the small investor" and conceded that job losses would be "in the thousands", although he declined to put an exact figure on the redundancy toll.
"We want to tell our colleagues first," he said.
Sky News revealed at the weekend that the Co-op Bank would cut well over 1,000 jobs, or more than 10% of its workforce, as it shifts its focus to retail and small business customers.
Niall Booker, chief executive of the Co-op Bank, said it remained "committed to co-operative values and ethics, and I am delighted that our future shareholders have agreed we can embed our commitment to Values and Ethics into our constitution".
"We now have the opportunity to renew our focus on serving the needs of our retail and small business customers. We will strive to make things simpler for our customers, removing unnecessary processes and reducing costs," he said..
"We will also put greater rigour into our risk management and controls, ensuring our customers are dealt with respectfully, fairly and transparently."
The Co-op Bank was stunned earlier this year when it was told by regulators that it would have to find £1.5bn to meet Bank of England capital rules.
It lost hundreds of millions of pounds on bad loans, some of which stemmed from its merger with the Britannia in 2009, and has been far from immune to the wave of mis-selling scandals which have swept through the British banking industry.
The mutual had been planning to buy more than 630 Lloyds Banking Group branches in an effort to become one of the industry's leading players but analysts said that it was likely to be a far smaller bank for many years as it attempts to rebuild its reputation.
In its statement on Monday, the Co-op warned creditors that it was essential for them to vote through the restructuring plans.
"The Bank believes that, if the LME does not succeed, the only realistic alternative is resolution of the Bank under the UK Banking Act 2009 and believes that if the Bank were to enter into a bank insolvency or administration procedure following resolution, all holders of the Existing Securities would receive no recovery at all."
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