Britain's Co-operative Bank said on Tuesday it had started a consultation to cut around 400 jobs, equivalent to 12% of its workforce, as part of broader plans to simplify its business and reduce costs.

News of the proposed redundancies follows a multi-year overhaul of the British bank, which included a 100 million pound ($126.46 million) IT investment programme.

"The decision has not been made lightly, and the Bank will continue to work closely with our trade union and to support impacted colleagues," it said in a statement, describing the cuts as "essential" for the delivery of its strategic plan.

Co-op Bank, which lends to consumers and small and medium-sized businesses, said late last year that it had entered exclusive discussions with Coventry Building Society with a view to a possible merger, following a number of non-binding offers from potential bidders.

Discussions with Coventry are ongoing, a spokesperson for Co-Op Bank told Reuters on Tuesday.

Britain's banking sector is undergoing one of the busiest phases of consolidation in several years, with smaller lenders seeking to join forces to better compete against the likes of HSBC, Barclays, NatWest and Lloyds Banking Group.

Last week, the boards of Nationwide and Virgin Money UK said they had agreed terms on a

2.9 billion pound deal

that would create Britain's second largest provider of mortgage and savings products. ($1 = 0.7908 pounds) (Reporting By Sinead Cruise, editing by Iain Withers)