Belfast Telegraph

CO-operative bank boss: 'No surprise' if Co-op won't pass Bank of England's stress test

By John-Paul Ford Rojas

The head of the Co-operative Bank has admitted it will be "no surprise" if the embattled lender fails to pass a Bank of England stress test later this month.

Niall Booker issued a statement on the likely outcome of the test ahead of the exercise on December 16 by the bank's Prudential Regulation Authority (PRA).

But he said the business - which nearly collapsed in 2013 after a £1.5bn hole in its balance sheet was identified - was "much stronger than a year ago", 12 months into a capital and business plan agreed with the PRA.

The forthcoming test will examine the ability of lenders to withstand a crisis scenario in which house prices fall by 35% while unemployment and interest rates also surge.

It uses a key measure of capital held as a proportion of a bank's loan assets, with a minimum ratio seen as necessary to maintain stability.

Mr 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% of our 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."

He pointed to a disclosure already made in the bank's half-year results in August that it would fall below the 4.5% capital ratio in a 1-in-25 stressed scenario, which was less severe than that envisaged by the PRA.

Mr Booker said the Co-op's capital and business plan was continuously being reviewed and was designed to build up resilience by disposing of non-core assets and "not reliant on raising fresh capital to meet its requirements".

He said the bank had already made "significant strides" through capital raising and was ahead of schedule in the disposal and run-down of parts of the business, while a pick-up in demand for parts of its portfolio subject to stress could help the capital position.

The statement came as the lender announced the completion of its sale of Illius Properties, which buys up repossessed sites, for £157.5m in cash, which will help towards the process of shoring up its balance sheet.

The Co-op Bank had to be rescued last year after its near-collapse in a deal that saw it fall into the control of bondholders including US hedge funds.

It has had to raise £1.9bn in capital and the wider Co-operative group's stake has slipped from 100% to 20%.

A report into the episode raised serious questions about the bank's old management under former chairman Paul Flowers - a Methodist minister whose lack of experience in the sector was severely criticised and who was also caught up in a drugs scandal.

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