The chief executive of the Co-operative Bank, Barry Tootell, has quit after its failure to buy 632 Lloyds Banking Group branches under the failed ‘Project Verde’ plan and a downgrade from the Moody’s credit rating agency (CRA) which reduced it to ‘junk’ status over concerns about its vulnerability to future losses.
Moody’s warned that the Co-op Bank may need “external support” if it cannot strengthen its balance sheet in the face of declining retail bank profits in the UK and enhanced calls for more capital to be held by banks under the Basel III capital adequacy rules and the additional UK Vickers rules.
The Co-op Bank is a mutually owned bank so it will always struggle to raise money on the markets as other banks do and the downgrade points to the what the mutual movement sees as the unfair rules it is facing without regard to its unique member-owned status, which is akin to a credit union in the US. The Co-operative said it was “disappointed” by Moody’s downgrade from A3/Prime 2 to Ba3/Not Prime, insisting that it had a strong funding profile.
The Co-op Bank reported annual losses in March of £674m for 2012. A lot of this can be blamed on its takeover of Britannia Building Society in 2009 which left the group with a welter of bad loans. Moody's states that it believes 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 and the on-going pressure on its finances.