Co-operative Bank gets Downgraded.

by Mark Johnston

Co-operative Bank gets Downgraded.

The Co-operative bank has 6.5 million customers and a reputation for customer service and an ethical stance.

It also has a 1.5 per cent share of the current account market and is regarded by the government as a key challenger in the high street to the big four players, Lloyds, Royal bank of Scotland, HSBC and Barclays.

A current forecast has estimated the capital shortfall at the Co-operative bank at £1.8 billion. These calculations are based on estimated losses from property loans, largely inherited from the Britannia building society, with which the bank merged 2009.

Basically, the total income for the Co-operative Banking Group in 2012 was £1.4 billion and its operating costs were £713 million. The impairment losses, plus the fact it had to set aside £150 million for payment protection insurance (PPI) claims, helped send the bank into a huge loss last year of £662 million.

Recently Moody’s, a rating agency, has downgraded the Co-operative bank which means that the bank is less likely to be able to meet its debt obligations. The impact of this can be that it can become costlier for the downgraded company to borrow money, as they look much riskier to lend to.

The move by the ratings agency came after the bank recently posted £600 million losses in March and then also pulled out of a deal to buy 632 branches from Lloyds banking group.

Neither the bank nor the city regulator, the Prudential Regulation Authority, has put a public figure on the amount of capital needed by the Co-operative.

Experts have therefore warned that the bank may need ‘external support’, as in a low interest rate environment, like the one in which the UK is in at the moment, prospective profits growth for the bank is limited.

However, the Co-operative bank is trying to reassure its customers that it would not need a multimillion pound taxpayer bailout.

A spokesperson for the bank said “in light of the current news, we would like to reassure customers and members that we have not sought nor do we need government support”.

Although the bank has admitted it needs to raise fresh capital but it did insist that it could ‘plug’ any shortfall through actions it already has in place.

The Co-operative plans to sell of its insurance business and to also scale back part of its bank, though city experts do not believe that this will help bolster the banks financial position.

Billy Hayes, general secretary of the Communication Workers Union (CWU) and a non-executive director of the Unity Trust bank said the “Co-operative’s downgrade is a major worry for the unions and our members”.

Some industry experts have suggested that in light of this downgrade the bank may decide to pull out of banking altogether.

All this said customers of the bank should remember that the Co-op Bank is authorised and regulated by the Financial Conduct Authority (FCA), which means that deposits are protected by the UK Financial Services Compensation Scheme (FSCS).

 



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