‘No surprise’ if Co–op Bank fails stress test

Co-op Bank nearly collapsed last year and fell under the control of bondholders. Picture: Getty

Co-op Bank nearly collapsed last year and fell under the control of bondholders. Picture: Getty

Share this article
1
Have your say

The Co-operative Bank has hinted that it is unlikely to pass key stress tests from the Bank of England which are due to be published later this month.

Chief executive Niall Booker said it would “come as no surprise” if the bank fails the tests being carried out by the Prudential Regulation Authority (PRA), which are designed to mimic the effects of a once-in-25 years shock on the financial sector.

Britain’s eight biggest lenders are being tested on their ability to withstand a theoretical 35 per cent crash in house prices, alongside surging unemployment and interest rates, with the PRA due to announce the results on 16 December.

Booker said: “It will come as no surprise if the bank does not meet the desired capital ratios in the stress tests due to be announced in December.

“Almost 70 per cent of our customer assets are residential mortgages and it has always been clear to ourselves and the regulator that we are vulnerable to these tests at this point in our turnaround.”

Co-op Bank nearly collapsed last year and fell under the control of bondholders after a £1.5 billion capital shortfall was identified.

It has since started a programme aimed at improving its capital buffers, but the process is expected to take several years.

The plan, which focuses on disposing of “non-core” assets rather than raising further capital, was agreed with the PRA.

Booker also said the PRA test used data which is now a year old, and the Co-op Bank’s balance sheet has improved considerably in the time since then.

It comes as the Co-op Bank announced it had completed the sale of its subsidiary Illius Properties.

SUBSCRIBE TO THE SCOTSMAN’S BUSINESS BRIEFING

Get the latest business headlines from a variety of news sources emailed to your inbox each morning

Back to the top of the page