The Co-operative Group could relinquish its majority share in its banking arm as it faces pressure to stabilise the division.  

The Co-op is in discussions with US hedge funds and other creditors to give bondholders a majority share of the bank’s equity in exchange for their existing debt, according to the Financial Times.

The Co-op is expected to retain a minority stake in the bank which could represent a further scaling back of the group following exits from its life insurance and pension businesses earlier this year.

Investors have rejected The Co-op’s original plan to swap their existing bonds into new debt in the Co-op, which it unveiled in June, as it attempts to raise £1.5bn by the end of the year following demands from regulators.

The Co-op also said today is to set aside a further £100m-£105m, largely to cover the escalating bill for payment protection insurance mis-selling.

The Co-op will reveal details of its restructuring by October 28.

The retailer said today: “The board of the group remains committed to delivering a solution that provides both the necessary capital for the Bank, while preserving its ethical focus, and an acceptable outcome for bondholders, including private investors.”

Former Co-op Group chief executive Peter Marks is to appear before the Treasury Select Committee tomorrow to face questions over The Co-op’s failed bid to buy the TSB assets from Lloyds Banking Group

Co-op Group chief executive group Euan Sutherland on recapitalisation plan