The Co-operative Group, alongside its banking arm – Co-operative Bank, has agreed a comprehensive ‘bail-in’ deal with the Prudential Regulation Authority after a flurry of financial difficulties.

In an announcement this morning, the Bank claimed that the rescue deal will involve a debt-for-equity deal with all junior bondholders, with the remainder coming from a sale of the Co-op’s life and general insurance arms.

There will also be a significant amount contributed from the Bank’s parent company, The Co-operative Group, alongside the £1 billion to be contributed this year from the bond arrangements, and a further £0.5 billion next year.

Speaking on this morning’s decision, Euan Sutherland, Chief Executive of The Co-operative Group, said: "This announcement is good news for The Co-operative Group, The Co-operative Bank, its customers and our members. We have put in place a detailed and comprehensive solution to meet the current and longer-term capital requirements of the Bank.

“In doing so we have agreed a plan to ensure its future. We have discussed this plan in full with the regulator. The Co-operative Group, which clearly regards the Bank as a core part of the Group, is providing extra capital. Investors in the Bank's subordinated capital securities are also being asked to support the Bank at this crucial time by participating in a wider exchange offer. This solution, under which they will own a significant minority stake in the Bank, will then allow them to share in the upside of the transformation of the Bank. The Bank itself has outlined a series of self-help measures that underpin a more targeted strategy for a responsible, community bank focused on its retail and SME customers.”

The bank, which has more than six million members and employs over 100,000 people, accumulated a significant proportion of its debt from its takeover of Britannia Building Society in 2009.

The Co-op, the largest mutual business in Britain, had been given until the end of June to agree plans with the PRA, in order to tackle the monumental shortfall in the bank’s capital deposits.

Over the course of the past few months, there has been significant media coverage over what many believed to be at least a £1.8 billion gap in deposits, coming shortly after the bank pulled out of a deal with Lloyds to buy 632 branches.  Co-op then suffered a credit rating slump, from credit ratings agency Moody’s, which led to the departure of Chief Executive, Barry Tootell.

Niall Booker, Chief Executive of Co-operative Bank, said: "We have a strong core retail business in the Co-operative Bank. Whilst we recognise that the short-term outlook is challenging, the measures we are announcing today mean we now have a credible plan for addressing the capital shortfall we face and can turn our attention to managing our non-core assets down and restructuring our core bank.

“In doing the latter, I will be working closely with the strong team of people within the Bank to ensure that we are focused on delivering a profitable business, driven by our commitment to core relationship banking and providing our loyal customers with fairly priced products and high-quality service."