The Co-op’s stake in its banking arm is to be reduced further after the troubled lender unveiled details of a £400 million rescue fundraising.

The mutual currently owns 30 per cent of the bank but this will be cut because the business is not taking up all of its rights in the offer to shareholders.

The bank, which recently reported a loss of £1.3 billion for 2013, was previously chaired by disgraced former Methodist minister and Bradford councillor Paul Flowers who was last week fined for drug offences.

Co-op Bank needs the additional cash from shareholders in order to cover the cost of legacy issues, such as insurance mis-selling The Co-op said it will still have a significant stake in the business and expects to remain the single largest shareholder. The exact size of the Co-op’s stake will not be known until the fundraising is complete in a few days’ time.

Chief executive Niall Booker said the additional funds will give the bank room to begin its turnaround plan.

He said: “The business plan is being implemented and there have been some encouraging early signs. We have started to simplify the business, reduce costs and de-risk the non-core assets, while remaining committed to the values and ethics that continue to set us apart.”