By Mark Kleinman, City Editor
The struggling Co-operative Bank will announce on Friday that it has struck a deal to keep its chief executive until at least 2017 as it attempts to return to profitability.
Sky News understands that Niall Booker, a former HSBC executive, has agreed to remain in his post for around two more years amid pressure from regulators for continuity at the helm of the embattled lender.
The deal with Mr Booker will be announced alongside the Co-op Bank's full-year results, which - while an improvement on its £1.3bn loss in 2013 - will provide a further reminder of the task facing its board.
Mr Booker had been discussing signing a rolling six- or 12-month deal with Dennis Holt, the Co-op Bank's chairman, when his existing contract expires in June.
However, sources indicated on Thursday that he would be tied into a longer deal, with a revised incentive package if he succeeds in transforming the bank's fortunes.
The disclosure of the new arrangements and the Co-op Bank's results will come three months after it was the only one of eight lenders to fail stress tests set by the Prudential Regulation Authority (PRA), an arm of the Bank of England.
Mr Booker took over in 2013 as the Co-op Bank faced the threat of collapse, following the emergence of a £1.5bn black hole on its balance sheet and a wider governance crisis at the Co-op Group, the UK's most prominent mutual.
The Co-op Bank's former chairman, Paul Flowers, brought it into disrepute when his drug-taking and sexual proclivities were exposed by a tabloid newspaper, while his financial competence was questioned by MPs after he failed to correctly state the size of the Co-op Bank's balance sheet.
The chief executive is said to have had a difficult relationship with some of the bondholders who became major Co-op Bank investors as part of its rescue restructuring just over a year ago.
As a consequence of its PRA stress test failure, the Co-op Bank postponed a vote on incentive awards for Mr Booker and senior colleagues because the proposals "include measures which may no longer be appropriate".
At the time of the stress test failure, Mr Booker said: "We have achieved the target of building our capital base and the actions we have taken during the first year of our business plan have made the Bank more secure for the benefit of all stakeholders.
"Our key ratios around capital, liquidity and leverage at the present time are significantly strengthened, we're ahead of schedule in the disposal of Non-core assets and the stability of our core franchise is improving.
"However, given we are in the early stage of our plan, the original capital deficit and the nature of our assets, it is no surprise that we have not met the severe stress test hurdle."
The Co-op Bank was plunged into financial chaos even as it attempted to pursue a takeover of 632 Lloyds Banking Group branches - which subsequently became TSB Banking Group.
It is now trying to sell a vast portfolio of assets, about which it has been holding talks with funds including Apollo Management, Blackstone and CarVal.
The talks with prospective investors are ongoing and are likely to result in a series of transactions involving different structures for the assets, which the banking regulator has ordered the Co-op Bank to sell.
A number of other unidentified parties have also held talks with the Co-op Bank about buying parts of Optimum, which the lender adoped after its merger with the Britannia Building Society in 2009.
A spokesman for the Co-op Bank declined to comment.
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