Annual counterparty survey shows local authority confidence in Co-op at rock bottom

The Co-operative Bank has come bottom of a group of 34 counterparties in this year’s Room151 Counterparty Confidence Survey.

The list which includes UK, French, German, Dutch, Scandinavian, Canadian, US, Australian and some Asian banks, as well as five UK building societies saw 68 local authority finance officers collectively rank the Co-op lower, and in most cases significantly lower, than every other counterparty in the survey (including the Britannia Building Society which is part of The Co-operative Bank).

The timing of the survey arguably tipped sentiment towards a harsher view of the bank, given the volume of current media scrutiny, but with an Average Confidence Rating of 1.52/5* and 43 of the 68 participants giving the the bank the lowest possible score, the result is alarming, considering the Co-op’s footprint in the local authority sector.

While news of the Co-op’s rescue plan was released on the 17th June, the day before the survey closed, we saw little to no impact on ratings completed over the 17th and 18th. Broadly positive analysis of the deal from the markets and financial commentators arguably came too late in the survey’s shelf-life to improve badly shaken confidence.

For the second year running HSBC Bank UK gained top spot in the survey, beating its peers by a fairly comfortable margin once again. RBS dropped out of the top five while Standard Chartered moved up to fifth from sixth.

Fig.1 Top five ranked counterparties from the 2012 and 2013 surveys ranked by their Average Confidence Ratings*

We surveyed local authorities on 34 different counterparties this year compared to 25 last year and also gave participants the option to select ‘No Opinion’ this time where they felt they did not “know enough about an organisation to merit an opinion”. The rationale being you can neither have nor lack confidence in an entity which you don’t know enough about. We anticipated this option would only be occasionally put to use but the results proved us entirely wrong.

Fig.2 Selection of well ranked overseas counterparties with high ‘No Opinion’ counts. 

Roughly a third of those surveyed had no opinion whatsoever about organisations such as Nordea Bank and the three, highly-ranked Canadian banks listed in Figure.2, above. Nordea’s short-term ratings are currently P1, A-1+ and F1+ from Moody’s, S&P and Fitch, respectively, and all three of the Candian banks’ short-term ratings presently stand at P1, A-1 and F1+. So with credit risk still high on the agenda and counterparty lists pared back dramatically over the last five years, it is noteworthy that such well rated institutions have not made it on to the treasury radar in so many cases.

Confidence in building societies remains low with Coventry Building Society (23rd), Leeds Building Society (27th), Yorkshire Building Society (32nd) and Britannia Building Society (33rd) all finishing way down the final table. The Nationwide Building Society however has bucked that trend for a second year finishing joint second with Lloyds TSB in the overall table with an ACR of 3.91/5.

Participants in the survey will receive the full set of results tomorrow, Friday, 21st June.

*Average Confidence Rating = the total score of a counterparty divided by the number of participants who ranked it from 1-5, where 1 = No confidence at all and 5 = Very confident/already place money/would place money.

The Room151 Counterparty Confidence Survey is not a measure of credit worthiness but of local authority finance officers’ confidence in a given group of banks and financial institutions.