Bank fails stress test - BoE accepts revised plan

The Bank of England announced this morning that The Co-operative Bank had - as expected - failed the most recent round of stress tests. Other banks - RBS and Lloyds scraped through.

In a statement released by the Co-op Bank, CEO Niall Booker said that a revised plan had been accepted by the regulator. The bank further says it has no plans to raise further capital.

“The Bank is much stronger than a year ago.  As the regulator notes today, we have achieved the target of building our capital base and the actions we have taken during the first year of our business plan have made the Bank more secure for the benefit of all stakeholders. Our key ratios around capital, liquidity and leverage at the present time are significantly strengthened, we’re ahead of schedule in the disposal of Non-core assets and the stability of our core franchise is improving. However, given we are in the early stage of our plan, the original capital deficit and the nature of our assets, it is no surprise that we have not met the severe stress test hurdle today.

We fully support the Bank of England’s objective that all firms should maintain capital buffers that provide insulation against severe stress scenarios and this is an important goal for the Bank. Our revised plan, accepted by the regulator, will see us accelerate our strategy to significantly reduce risk weighted assets. As we have indicated before this will be driven primarily through a reduction in Non-core assets and the exit of certain portfolios which are vulnerable to this type of stress. This will build greater capital resilience earlier than previously anticipated. Our plan is not reliant on raising additional equity capital.

The economic conditions in the UK are better than originally expected and since the application of the severe stress test to our balance sheet as at last December, we have significantly strengthened our capital position.  In addition, the recent sale of the Illius portfolio and the announced sale of the clean energy assets are deals that have been in gestation for some time and clearly indicate our readiness and ability to execute these plans under current market conditions.

The key now is to continue the progress we are making.  Under the management team brought in to strengthen and simplify the business, we are reshaping the Co-operative Bank around our individual and small business customers. We have begun reinvesting in our brand and re-engaging with customers on the values and ethics that we share and that make us different. There is, of course, more to do but, given a continuation of recent positive market developments, I’m confident the steps we are taking are building a stronger and better business for our customers, colleagues and shareholders alike.”

 

Comments

The Co-Op Bank did better than Banco Monti, one of Italy's oldest banks who also failed the stress test.

Like Co-op, Banco Monti has something that makes it hard for them just to shrink & merge. Banco Monti's age makes it hard for them to merge with others: if they join Santander, they are no longer the oldest bank and so loose something that makes them interesting.

Like Co-op, Banco Monti failed a stress test.

Unlike Co-op, Banco Monti's London branch could not afford to subscribe to the new Faster Payments service for transfer between bank accounts, so when the slower but cheaper BACS system closed some of their customers like my Italian supplier could not be paid. I had to send a cheque. I messed-up the accounting. The supplier did not believe me and ended my credit, so I now have to pay in advance for orders. So UK bank customers including co-op ones might resent loosing the bells and whistles of banking, like the lender who knows your business, but at least co-op manages money transfer!

Co-op also does better than Hoare's bank, a similar old-established name trading in London since 1672. An well-informed industry insider (my dad 30 years ago) told me that they had never merged or sold-out because they had hardly been profitable in all the years since 1672, so nobody wants to take them over. Or maybe, like Banco Monti, the name of Hoare doesn't sound like a winner to potential buyers.

By the way, I wouldn't trust Co-Op to do any international money transfer. The two P2P sites Transferwise and Currencyfair have got the market rate right down below what banks charge, and there may be also-rans who do better

http://www.theguardian.com/business/2013/feb/01/mps-bank-siena-scandal

http://www.hoaresbank.co.uk/