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By Steve Slater
LONDON, Jan 20 (Reuters) - Britain's Co-operative Group has scrapped the sale of its general insurance businessfollowing a restructuring deal which means it does not have tocontribute as much capital to its struggling bank as initiallyenvisaged.
The business had been expected to fetch several hundredmillion pounds and was due to have been sold during this year.
Co-op Group, whose bank has been hit by a capital shortfalland a drugs scandal involving its ex-chairman, said on Monday ithad decided to keep the general insurance business because thegroup now had to contribute less capital to the bank under arevised restructuring plan agreed in November.
Co-op, which is owned by its members and has operationsspanning banking, supermarkets and funeral services, was lastyear rocked after a 1.5 billion pound ($2.5 billion) capitalshortfall was identified at its bank and Paul Flowers, formerchairman of the bank, was arrested as part of an investigationinto the supply of illegal drugs.
A restructuring of the bank will leave hedge funds incontrol of that business and Co-op Group with a 30 percentstake. The group said it can meet its reduced capital commitmentto the bank through the already completed sale of its life andsavings business and "the strategic management" of some propertyassets.
Euan Sutherland, chief executive of Co-op Group, said he hadreceived "a significant amount of interest" in the insurancebusiness, which provides home, motor and other insuranceproducts.
UK insurer Legal & General considered a bid, aperson familiar with the matter previously said.
Other potential suitors included private equity firms Anacapand Advent International, and Catalina Holdings, a consolidatorof general insurance firms, according to media reports.
"Having considered the sale process, and in light of thechanged requirements on us under the Bank recapitalisationprocess, we believe it is in the best interests of our members,customers and colleagues, that we retain this strong businessand develop it further," Sutherland said in a statement.
The Co-op announced its plan to sell the business lastMarch.
