Co-op loses most of its bank

The chief executive of the Co-operative Group, Euan Sutherland, has confirmed that the mutual organisation will lose overall control of the Co-operative Bank as a result of a rescue deal.

The Co-op has been negotiating with big investors, led by US hedge funds, to provide extra capital for its bank, without having to turn to the taxpayer for a bail out or leave small investors nursing serious losses.

It hatched a plan in June under which it would retain control, but the hedge funds have stood in the way, seeking to take ownership of Cooperative Bank themselves.

Today Mr Sutherland conceded in a statement that the Group would be left with just 30 per cent of the bank, though he argued that he would keep "effective control" because no other shareholder would own a larger stake.

He said there was agreement in principle on the deal and more details would be released in the coming days.

Death-knell for interest-only mortgages

The Cooperative Bank has become the first major lender to pull out completely from offering interest-only mortgages.

The move comes in the wake of a clampdown from the City watchdog, the FSA, which wants all mortgage applications to be assessed on a capital repayment basis.

With an interest-only mortgage, the borrower only has to pay the monthly interest bill, without making regular payments to reduce the size of the loan.

Santander, Lloyds and Barclays have already made it much harder to qualify for an interest-only loan.

Now the Coop, the UK's 10th largest mortgage lender, says it has decided to pull out of the market. The decision also applies to the Britannia, which was taken over by the Cooperative Bank in 2009.

The group's 60,000 customers who already have the loans will be able to apply for new Coop-branded interest-only loans - but they'll find it very difficult to shop around for a better deal.

Lloyds ends exclusive talks with Coop

Lloyds Banking Group has stopped exclusive talks with the Co-op on selling 632 branches, along with 5% of the UK's current accounts.

Lloyds was told to make the disposal by the European Commission after it emerged from the financial crisis with a dominant share of UK banking.

The exclusive nature of the talks was always due to be reviewed at this stage, but in recent weeks the Co-op has faced challenges in gaining approval from the City watchdog, the FSA.

Lloyds has also received a new rival bid from NBNK, a banking venture set with the express purpose of taking over the branches.

Lloyds says that the Co-op remains the "preferred buyer", but that it will now proceed with talks with NBNK at the same time.

There has been speculation that the bank would be forced to ask the Commission for an extension of the November 2013 deadline for making the disposal.

But Lloyds maintains that even if the takeover talks fail, it will be able to sell the 632 branches as an independent business, in a public offer of shares on the stockmarket.