Co-op Bank investors back £1.5bn rescue

A number of other Co-op Bank bondholders still need to approve the deal. Photograph: Christopher Furlong/Getty Images

The threat of emergency intervention by the Bank of England into the Co-operative Bank receded on Friday night after thousands of retail investors gave their backing to a £1.5bn lifeline for the troubled high street bank.

The support of the bondholders is a major step towards avoiding Threadneedle Street having to step in to wind up the bank but is part of a process that will force the Co-op Group – which owns supermarkets, funeral homes and pharmacies – to cede control of its banking business to bondholders, who have been led by aggressive US hedge funds.

The complex restructuring is still far from complete – a number of other bondholders still need to approve the deal – but the support of the retail investors was regarded as the biggest hurdle because they needed to be convinced to vote.

Some 13,000 bondholders had invested £370m in the bank using financial instruments that paid high returns and were relied on by pensioners for income. Other groups of bondholders also have to vote and a number of court hearings are necessary before the fresh injection of capital into the bank will be formally agreed.

Once it is, the Co-op Group will own just 30% of the bank – which is expected to be floated on the stock market late next year – and the bondholders will own the remaining 70% of the shares.

In joint statement on Friday night the management of Co-op Group and Co-op Bank said they were delighted by the support. "We are now highly confident that our £1.5bn recapitalisation plan for the Co-op Bank can be achieved," they said.

The Bank of England has given the bank until the end of the year to plug a capital shortfall identified in June but the bank's problems escalated this month after its former chairman Paul Flowers was arrested on allegations about buying drugs.

Its future has sparked a political row about whether Labour ministers encouraged the bank to merge with Britannia Building Society in 2009 – and now regarded as the source of many of its loan losses – and whether the coalition cheered on the now ill-fated attempt to take control of 631 Lloyds Banking Group branches.

The bank was forced to admit on Thursday that customers were moving their current accounts because of the Flowers scandal and the fears that it would be hard to maintain its ethical approach to business once the Co-op Group was no longer in control. But it had stressed that savers – a key source of its funding – had not been leaving.

The Co-op Group had warned that if bondholders had failed to back the restructuring they risked losing all their investments as the only alternative was "resolution" by the Bank of England.