The troubled Manchester-based Co-operative Bank said on Wednesday it agreed a complex £700 million rescue package with its major investors that would shore up its capital base.

The proposed deal would see the Co-op Bank’s investors swapping their bondholdings for cash and shares — a move that would improve the bank’s capital levels and take them back up to a level acceptable to the UK’s financial regulators.

The self-styled “ethical bank” has been hit by a number of scandals in recent years and had to be rescued by a group of hedge funds in 2013.

The hedge funds invested in Co-op bank include Cyrus Capital Partners, GoldenTree Asset Management, BlueMountain Capital and Silver Point Capital.

The UK’s Prudential Regulation Authority said it accepted the proposal but that the implementation of it would be subject to further approvals.

Co-op Bank serves about four million retail and small businesses in the UK.

Co-op Bank chairman Dennis Holt said: “The board is pleased to confirm this proposal for a recapitalisation which will mean that The Co-operative Bank can continue as a viable stand-alone entity, with values and ethics at its heart.

“It is a great outcome for our customers.

“Our investors share our commitment to building our distinctive ethical franchise and see strong future growth potential for The Co-operative Bank.”