Video: Message from Euan Sutherland: Update on Recapitalisation Plan for The Co-operative Bank The Co-operative Group has agreed to cede control of its stricken banking arm after bondholders threatened to block the lender's rescue. The supermarkets-to-funerals mutual has torn up its original restructuring plan after proposals to fill a £1.5bn black hole in its banking arm were rejected by creditors. The Co-op Bank was facing closure after the regulator discovered the capital shortfall and ordered the group in June to raise the funds or be placed into "resolution." Euen Sutherland, Co-op group chief executive, said: "We have reached an agreement in principle that saves the Co-op Bank. This is the first bank to be rescued and survive as a stand alone entity without taxpayer money. Under the new agreement, the group will retain only a 30pc stake in its subsidiary, the Co-operative Bank. The bulk of the bank's £1.3bn of subordinated debt holders will be swapped into bank shares, handing them 70pc of business. The Co-op will be the bank's biggest single shareholder, but sources said seven of the hedge funds involved will collectively own more than 30pc. Despite the Co-op's loss of control, the lender will continue to operate under the Co-operative brand and keep its distinctive ethical offering. To protect those principles, the group has rewritten the bank's constitution to enshrine the mutual ethics into its articles of agreement. We have embedded the Co-op's values into the constitution of the bank. That's the reason the franchise is a success. The hedge funds get that. They are investing on the premise that this is the ethical, social and community bank. They can see the benefits of differentiation in the market place," Mr Sutherland said.