Co-op Bank crosses fingers rescue plans will take shape, as bondholders get together to potentially push back on capital calls and Bank of England considers pulling the plug

Hayley Kirton
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Co-op Bank Downgraded By Rating Agency Moody's
The challenger bank announced it was putting itself up for sale last month (Source: Getty)

The clock is ticking on Co-op Bank's hopes of finding a buyer, amid reports that hedge funds are pushing back against plans to extract more capital from shareholders.

The bank, which revealed there was a £1.5bn black hole in its accounts in 2013, announced in February it was putting itself up for sale. Up until that point, it had been embarking on an ambitious turnaround plan, but said outside factors, like rock-bottom interest rates, had hampered its attempt to raise capital organically.

There has been a considerable amount of speculation that, although there may be several bidders for certain assets of the bank, nobody would be willing to snap up the whole of the lender.

Read more: Secure Trust Bank boss rules out interest in Co-op Bank

Late last week, Co-op told the market that a "number of credible strategic and financial parties" had approached it regarding the sale and it was asking those who were interested to table their initial bids in the first half of April.

However, the troubled challenger also stressed there was no certainty an offer would be made, or that, if an offer was made, it would meet the standards of the bank and its shareholders.

Meanwhile, the Sunday Telegraph has reported some of the hedge funds who are invested in the bank are thinking about setting up a bondholder committee to make sure their interests are better represented should the lender push ahead with a debt-for-equity swap.

Read more: Bank of England steps up to push along Co-op Bank rescue plans

It has also recently come to light that Monarch Alternative Capital, one of the US hedge funds involved in an early debt-for-equity swap which reduced then majority own Co-operative Group's stake to just 20 per cent and effectively rescued the bank from collapse, has ditched its stake.

However, it is not entirely clear when Monarch sold its stake or who brought it.

Co-op Bank has previously said it may have to approach investors to stump up as much as £750m to close the capital gap if a suitable buyer could not be found.

Read more: OneSavings boss: If Co-op Bank sale fails we'll pick up the pieces

It has also previously been reported the Bank of England's Prudential Regulation Authority is getting increasingly anxious over the state of the lender and has recently called in external advisers to start working on an alternative plan, which could ultimately include the winding up of the bank it deems there is no hope in sight.

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