Co-op boss out; mutual hit with junk credit rating

Co-operative Bank has attempted to allay fears that it needs a taxpayer bailout after credit rating agency Moody’s warned that the firm may need “external support” because of rising bad debts.

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The mutual, which also said chief executive Barry Tootell had quit with immediate effect yesterday, insisted it did not need state help, adding that its liquidity levels are “significantly above the regulatory requirements”.

In a statement, the company said: “We would like to reassure customers and members that we haven’t sought, nor do we need, government support.”

Moody’s slashed the Co-op’s debt rating to “junk” status because of its concerns over costs linked to the firm’s takeover of Britannia Building Society in 2009. It also calculated that the Co-op’s “problem loan ratio” had increased to 10.9 per cent at the end of 2012 from 8.1 per cent in 2011, reflecting a deterioration in its commercial property book.

A spokesman for the Co-op, which last month walked away from talks to buy more than 600 branches from Lloyds Banking Group, said the lender has a “clear plan” to strengthen its capital position and simplify its business.

It racked up a £662m loss last year because of “non-core” write-downs related to the Britannia takeover and a £150m charge to compensate customers who were mis-sold loan insurance.

The firm has agreed to sell its fund management and life insurance businesses to Royal London for £219m and is also planning to offload its general insurance arm to strengthen its balance sheet.

The Co-op has been at the centre of intense speculation over its financial strength after pulling out of the Lloyds branches deal, which is thought to have collapsed as it struggled to fill a £1 billion shortfall in its reserves to cushion any potential future crises.

Tootell had been chief executive of the bank for less than two years and a spokesman said he “decided that the time is now right for him to stand down from his role” after the firm walked away from the £750m acquisition of 632 branches. He will be replaced by Rod Bulmer, who has been with the bank for six years and previously headed up UK retail distribution for Santander.

George Osborne said the Co-op’s plans to strengthen its capital position would be supervised by the Prudential Regulation Authority (PRA), set up last month to oversee the soundness of Britain’s banks and building societies.

Speaking at a G7 meeting of finance ministers in Buckinghamshire, the Chancellor said: “We now have a very strong independent regulatory system that looks at all of our banks, including the Co-op, and indeed here at the G7 we are going to be talking about what we can do to strengthen international co-ordination and regulation of our financial system.”

The PRA and Treasury said they did not comment on individual banks. When asked whether the UK government would step in to help the Co-op if needed, the Prime Minister’s spokesman said: “I’m not going to speculate on something that hasn’t happened yet.

“I would simply say that we are committed to having a strong and stable financial sector, and when we say ‘strong and stable’ we also mean well-regulated.”