Fitch downgrades Co-operative Bank
0Ratings agency Fitch has downgraded the Co-op bank to BBB- with negative outlook. Both its long term issuer default rating and viability rating have gone down from BBB+ to BBB-. According to Fitch the bank has weaker core capital and Tier 1 ratios than most of its similarly rated peers at the end of 2012. This was due to a greater than anticipated deterioration in earnings and asset quality.
“The bank’s reported end-2012 fully-loaded Basel III ratio is very low at 6.3% (6.7% at end-January 2013) for a bank rated at an investment grade level,” said Fitch’s report.
However it also pointed out that the Co-operative Bank has a high liquidity reserve and strong funding profile. It also expects lower loan impairment charges for this year and smaller non-operating costs and will see capital receipts from parent group Co-operative Banking Group plc following the sale of its life and savings business.
Co-op Bank’s underlying profitability is weak though, said Fitch. Pre-impairment earnings for 2012 are down 52% and non-operating items such as PPI claims and impairment of IT assets, at £150m each, hit profits.
Room151’s ongoing research for the forthcoming Public Sector Treasurers’ Handbook indicates that the Co-op remains one of the most popular current account banks among local authorities, despite concerns over its credit rating.
