Co-operative Bank lost a staggering £709 million in the first half of the year and today warned bondholders that if they do not approve a £1 billion raising of fresh capital later this year it would go bust.
"There is no plan B," said Co-op Group chief executive Euan Sutherland. "We are standing firmly behind the bank. Having looked at all the options, the plan we have come up with is the one which is the best interests of the greatest number of stakeholders."
He added: "We are sorry, but we are a new team grasping the nettle and getting on with fixing the problems."
Richard Pym, chairman of the bank, said that without the new capital, "we will not be a going concern".
Sutherland also warned that the future bank would be much smaller than today. He would not comment on how many of the bank's 10,000 staff will lose their jobs or how many of its 320 branches will close. He said: "It is inevitable that there will be some jobs at risk. That is the very unfortunate consequence of what we have to do."
Co-op Bank took writedowns and one-off charges totalling £740 million in the first half. These included bad loan charges of £496 million, of which three quarters is related to what it has decided is its non-core business and the rest from ongoing business.
Niall Booker, the bank's new chief executive, said the bulk of the losses came from the Co-op's ill-fated take-over of Britannia Building Society in 2009. A further £148 million writedown came as the result of scrapping a planned new IT system. That took total IT writedowns to £300 million.
Booker said this was the result of the bank's ambitious plans for growth, including the attempted purchase of 630 Lloyds branches, known as Project Verde. That collapsed earlier this year, leading to the downgrading of Co-op Bank bonds to junk and the Prudential Regulatory Authority's demand that it find an extra £1.5 billion of capital.
Other charges were £61 million for compensating customers who were mis-sold products.
Sutherland said that while the bank lost most of its wholesale and corporate deposits following the rating downgrade, its 4.7 million retail customer base had stayed "incredibly loyal".
He added that the group was still on track to publish the prospectus for its £1 billion exchange offer, which will see bondholders asked to take haircuts on their holdings and the flotation of the bank on the stock market by the end of October.
The PRA has demanded that the bank raise £1 billion by the end of this year and a further £500 million, largely from the sale of the Co-op's general insurance business, by the end of 2014. Co-operative Group, which also includes the supermarkets and funerals businesses, had a first-half loss of £559 million.
Sutherland said he believed that eventually Co-op Bank, while being smaller, would still play a "significant role in the banking sector".
Booker said: "We have to be realistic about how much time it will take. If you look at Lloyds and Royal Bank of Scotland, they took four to five years."Reuse content