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LONDON, Nov 28 (Reuters) - Britain's Co-operative Bank said it has lost current account customers as aresult of a scandal involving its former chairman and a schemethat makes it easier for people to switch bank accounts.
The bank, which acknowledged the damage to its reputation,said its retail deposits and liquidity remained stable and itwas too early to identify any significant trends.
British police last week arrested the former Co-op Bankchairman Paul Flowers as part of an investigation into thesupply of illegal drugs.
Finance minister George Osborne has ordered an inquiry intothe bank, just as its mutually owned parent attempts to pushthrough a rescue plan that passes control of the lender to agroup of hedge funds.
Co-op Bank said its recent troubles, competition from otherbanks and the introduction of seven-day account switching mayhave contributed "to an increase the bank has seen in theswitching out of current accounts."
Investigations are likely to mean the bank will incur morecosts than expected as it is subjected to more scrutiny fromregulators and takes up management time, the bank said
The update was included in a statement that detailedtechnical changes to the deal that will see bondholders take a70 percent stake in the bank and the Co-operative Group keep 30 percent.
The bondholders were originally due to get 45 percent of thegroup in exchange for their debt, and another 25 percent bybuying ordinary shares for 125 million pounds.
They are now getting 57 percent of the bank in exchange fortheir debt, and will pay a higher price for each share, althoughtheir total investment and shareholdings will be the same underthe new terms.
The changes aim to prevent an "unintended consequence" whereby professional investors would have been able to buy smallnumbers of bonds that allowed them to buy large numbers ofdeeply discounted shares in the bank, creating an arbitrageopportunity, a person familiar with the bank said.
