LONDON: The Co-operative Bank ruled out government support yesterday, after a warning from ratings agency Moody’s that it might need taxpayers’ money to plug a capital shortfall prompted its chief executive to resign.
Speculation about Co-op Bank’s weak capital position has grown since it pulled out of a deal to buy 630 branches from Lloyds Banking Group last month.
The bank, one of Britain’s smaller lenders with 6.5 million customers and a 1.5 percent share of the current account market, said it did not need a bailout.
“We would like to reassure customers and members that we haven’t sought nor do we need government support,” the Co-op said.
The bank is part of Co-op Group, Britain’s biggest mutual business, which is owned by individuals and includes supermarkets, funeral services and pharmacies.
Britain spent a total £124bn bailing out Royal Bank of Scotland, Lloyds Banking Group, Northern Rock and Bradford & Bingley during the 2008 financial crisis, according to the independent National Audit Office.
The financial regulator said in March that UK banks must raise £25bn ($39bn) of extra capital by the end of the year to absorb any future losses on loans.
Industry sources have said that the Co-op’s shortfall could be in the region of £700m ($1.1bn) to £750m.
The Co-op said Barry Tootell would step down as chief executive of its bank and that Rod Bulmer, who has held a number of senior positions at the bank, would step into the role until a permanent replacement is found.
A source familiar with the situation said Tootell had planned to leave following the collapse of the Lloyds deal, but the Moody’s report accelerated the process.
Moody’s said late on Thursday the bank faced the risk of substantial losses in its non-core portfolio — loans the bank has identified as risky — and the low level of funds it had set aside to deal with them left it vulnerable to losses.
The agency said there was “moderate potential for systemic support likely to be forthcoming from the UK authorities,” to maintain regulatory capital levels.
That support could also come from the Co-op Group itself, which has gross assets in non-financial operations of £6.3bn and net equity of £4.5bn.
Moody’s lowered the deposit and senior debt ratings of the bank and placed it under review for further downgrades.
The agency said the Co-op bank’s capital levels were low compared with peers. Co-op’s core tier one capital ratio was 6.3 percent at the end of 2012, assuming the full implementation of tougher global rules that are being phased in. Britain’s regulator wants banks to hold at least seven percent.
Reuters
