Co-operative Bank admits it is unlikely to pass the Bank of Englandís annual test of its financial strength.


December 2014

Co-operative Bank admits it is unlikely to pass the Bank of Englandís annual test of its financial strength.

The Co-operative Bank has divulged that it would ìcome as no surpriseî if it failed the Bank of Englandís rigorous evaluation of its financial viability this December, a year after it was found to be teetering on the precipice of ruin.

The central bankís results of its stress testing on eight of Britainís biggest banks will be published on the 16th December, and the Co-opís chief executive has conceded it is likely it will fall short of the required capital to deal with the most hostile of economic conditions.

Chief Executive, Niall Booker, who was brought into the Co-opís fold last year when the bank was enduring its darkest times, outlined a BoE approved 5 year business plan intended to solidify the bankís financial standing through the offloading of its non-core assets alleviating pressure on the Co-op to raise even greater amounts of new capital.

Having already procured £1.9bn in capital over the past year and a half, the Co-op Bank has gone some way towards climbing out of the £1.5bn crater it landed in in 2013, as it underwent scandal after scandal resulting in swathes of customers switching to a different provider. As a result of these losses, the Co-op was forced to transfer 80% of its holdings to bondholders, losing majority control of its own business.

These heavy losses were followed by revelations about then-chairman, Paul Flowersí, sketchy financial affairs and long-term drug habit further sullying the bankís name, and Mr Booker has laid bare the struggles the Co-op will face to get back in the black, with job-cuts and branch closures expected to be a regular occurrence until at least 2016.

In response to a report in the Times, Mr Booker said: "Given the disclosures to the market in August, 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% 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 released results of its internal stress test, conducted in August, which entailed their inability to cope with the severities of a 1 in 25 yearsí financial crisis, leading many to already fear the worst for the lender.

The branch of the Bank of England concerned with keeping lenders in line with central policy, the Prudential Regulation Authority (PRA), are testing lenders under a far severer criteria than the Co-opís internal stress tests, with measures including a bankís capacity to cope with a 35% drop in house prices and a base rate hike to 4%.

ìWe are supportive of the stress tests,î Booker said. ìNearly all banking crises have their roots in bad loans and in particular bad property loans so it is right that this aspect should be stressed under extreme scenarios.

ìThe stress tests were undertaken at the end of last year and in 2014 we have made significant strides through capital raising and, as we stated at half year, are ahead of schedule in the disposal and run down of non-core assets.

Despite its own admission of its lack of sufficient resource, the Co-op remains popular with the wider public, as highlighted by the results of a YouGov survey showing over 60% of the 180,000 sample still held the bank in esteem.