(Adds Co-op Bank comment in paragraphs 6 and 7)
LONDON May 4 Britain's Co-op Bank will announce
details this week of a 400 million pound ($675 million) rights
issue that is expected to leave its former owner holding just
over 20 percent in the troubled lender.
According to Britain's Sunday Telegraph newspaper, the Co-op
Group is expected to tell its old banking arm it will
take up only some of the 120 million pounds worth of shares it
can buy due to its 30 percent stake in the firm.
The struggling mutual, which is already committed to handing
the Co-op Bank more than 200 million pounds this year under the
terms of a 1.5 billion pound emergency recapitalisation, could
undertake a 'tail swallow', whereby it sells enough of its
options to avoid having to put any new money into the business,
the newspaper said without citing sources.
The Sunday Telegraph said the technique was seen as a better
option than selling all its rights and avoids the possibility of
the Co-op's stake being diluted below 20 percent, which would
mean it would lose any effective control over the bank.
The newspaper said Co-op Bank's boss, Niall Booker, and UBS
bankers saw enough interest from existing and
potential investors in buying some of the mutual's share of the
rights issue to allow the Co-op Group to go ahead with its plan.
"The Bank's capital raise will be unaffected by the group's
decision whether or not it participates, and to what extent it
participates," a Co-op Bank spokesman said in a statement to
"The Bank is confident that it will raise the 400 million
pounds with or without the group's involvement."
The Co-op Group declined to comment on the report.
The Co-op Bank came close to collapse last year after a 1.5
billion pound capital shortfall was exposed. A recapitalisation
brought it under the control of bondholders including U.S. hedge
On Wednesday, an independent review found its problems were
rooted in its 2009 takeover of the Britannia Building Society
and poor management controls.
($1 = 0.5927 British Pounds)
(Reporting by Neil Maidment; Editing by Ruth Pitchford)