Ratings agency downgrades Co-op Bank

THE Co-op Bank has been downgraded by the credit ratings agency Fitch which warned there are “material risks” to the completion of its £1.5bn rescue plan.

Fitch also raised concerns that it could lose customers following a reduction in the Co-op Group’s stake in the bank to 30%.

It said this, “has the capacity to diminish Co-op Bank’s small but stable domestic franchise and loyal customer base”.

Earlier this month the Co-op Group unveiled a rescue plan for the bank – yet to be approved by bondholders – which will see it lose control when it floats on the stock market.

The remaining 70% will be held by bondholders with around 35% belonging to Silver Point and Aurelius, two US hedge funds that have forced the Co-op Group to revise its initial plan. This envisaged bondholders taking £500m of losses on investments worth £1.3bn and the Co-op retaining between 60-70%.

The ratings agency added: “Fitch considers that the new strategy, including the deleveraging of some non-core portfolios, while ultimately beneficial for senior debt holders in the long term if successful, to pose significant challenges over the medium term and preclude the bank from being capital-generative for some time.”

Its downgrade has taken the bank’s rating to B from BB and could be followed by a further downgrade if the restructuring fails. Bondholders must approve the plan by November 29, and if they fail to back it the bank could be taken on by the Bank of England.

A Co-op Bank spokesperson said: “The Co-operative Bank notes the announcement from Fitch. The rating agency’s response is anticipated and does not alter the Bank’s confidence in the recapitalisation plan, which is focused on delivering the £1.5bn of capital necessary to put the bank back on a stronger financial footing.”

In May the credit ratings agency Moody’s downgraded the bank to “junk” status.