EUAN Sutherland, the Scottish chief executive of troubled Co-operative, has written to 1.9 million of its members insisting it is "fundamentally strong" despite the painful rescue of the mutual's banking arm.

In an email, which went to thousands of members in Scotland where the movement has strong roots, he acknowledged investor anger over the bail-in of Co-operative Bank, which will leave bondholders nursing large losses, but said the plan will avoid further damaging asset sales.

Co-operative has already sold its life assurance business to Scottish Life's owner Royal London and is seeking a buyer for its general insurance arm to bolster its finances.

The collapse of a deal to buy 632 branches from Lloyds Banking Group, including the 185-strong Lloyds TSB Scotland network, was followed by the revelation the Co-operative Bank was nursing a £1.5 billion capital shortfall.

Mr Sutherland, who previously ran retailer Kingfisher's B&Q do-it-yourself business, said while the group was struggling through difficult times, it remained "fundamentally strong" and was now well-placed to tackle future challenges.

Mr Sutherland, who took over in May, said while some investors suggested the group should carry the full burden of the rescue, it also has responsibilities to its 7.5m members, of whom 475,000 are in Scotland.

He said: "The solution that we have come up with balances the long-term interests of our members and investors, giving all the opportunity to benefit from the potential future upturn in the bank's fortunes and the long-term sustainability of the group as a whole.

"These are clearly difficult times for us but I believe they are challenges that we are now well placed to meet.

"The Co-operative Group remains fundamentally strong and our ethical leadership, in retailing and the provision of financial services, remains a compelling force in the market place."

The Co-op recently appointed former Treasury official Sir Christopher Kelly to head an investigation into what went wrong at its banking arm.

The investor "bail-in" is due to happen in October, and will raise £500m of capital from investors. It will see bondholders offered shares via an "exchange offer", resulting in a stock market listing for the group's banking arm.

About 7000 small investors holding about £65m of £1.3bn of bond debt stand to be hit by the bail-in.

Mark Taber, who has launched a campaign on behalf of Co-op Bank bondholders, said regulators failed to take action early enough and created a "false market" for the bonds.

A report at the weekend claimed two US vulture funds have seized control of some of the bank's loans, which could threaten the rescue plan.

Aurelius Capital Management and Silver Point Capital have bought a controlling stake in a set of bonds, the Sunday Times reported, which could force even higher losses on lower-ranked retail bond investors.

Co-operative's presence in Scotland includes 400 food stores, 120 funeral homes and more than 60 pharmacies.

It also has four bank branches and three farms.