Moody's downgrades Co-op Bank's debt rating to 'junk'

 Co-operative Bank branch in Derby Last month, the Co-op pulled out of a deal to buy 630 bank branches from Lloyds Banking Group

Related Stories

Ratings agency Moody's has downgraded the Co-operative Bank's debt rating to "junk" status, citing fears that it is vulnerable to potential losses.

The agency warned that the bank may need "external support" if it could not strengthen its balance sheet.

The Co-op said it was "disappointed" by Moody's decision.

The news preceded the resignation of chief executive, Barry Tootell, following the bank's failure to buy 631 branches from Lloyds Banking Group.

Start Quote

What I think the downgrade highlights... is whether the Co-operative group, with its leading position in supermarkets and funeral homes (for example), is the best owner of a bank, at a time when profit margins in banking are so low, and may remain so”

End Quote

Mr Tootell will be replaced temporarily by Rod Bulmer, the bank said.

'Clear plan'

Responding to the Moody's downgrade, the Co-op said it had a "strong funding profile" that was "significantly above the regulatory requirements".

But in a statement, the bank admitted there was a "need to strengthen our capital position in light of the broader economic downturn and the pending introduction of enhanced regulatory requirements".

It added: "We have a clear plan to drive this forward throughout the coming months."

These plans include selling off its life and general insurance businesses, and simplifying its operations.

In March, the Co-op Bank reported annual losses of £674m for 2012.

Moody's reckons the bank's "problem loan ratio" rose to 10.9% in 2012, up from 8.1% in 2011, reflecting a deterioration in its commercial property portfolio.

Most of Co-op Bank's problems stem from bad loans associated with its takeover of Britannia Building Society in 2009.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Features & Analysis

From BBC Capital

Programmes

  • A computer simulation showing a planned station upgrade in Hong KongClick Watch

    Simulated world - how architects are using virtual and augmented reality to transform our cities

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.