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Fitch: Co-operative Bank Recapitalisation Plan Remains Key Rating Driver
August 29, 2013 / 4:17 PM / 4 years ago

Fitch: Co-operative Bank Recapitalisation Plan Remains Key Rating Driver

(The following statement was released by the rating agency) LONDON, August 29 (Fitch) Fitch Ratings says that Co-operative Bank plc's (Co-op, BB-/Rating Watch Evolving (RWE)) GBP1.5bn capital raising plan remains the key rating driver (as outlined in 'Fitch Downgrades Co-operative Bank to 'BB-', on Rating Watch Evolving' dated 20 June 2013 at www.fitchratings.com). Around GBP1bn of capital is to be raised in Q413 by way of an exchange offer for junior debt, with another GBP500m to be injected by the bank's parent (The Co-operative Group) in 2014, conditional upon a successful execution of the exchange offer. Fitch expects to resolve the RWE on completion of the exchange offer. The substantial losses announced by the bank for H113 were primarily driven by loan impairment charges relating to legacy commercial real estate loans. These charges reduced the bank's core Tier 1 ratio to 4.9% (FY12: 8.8%) and fully loaded Basel III Common Equity Tier 1 ratio to 3.2% at H113. Separately, the UK Prudential Regulation Authority announced today that the Co-op's results do not affect its assessment that the bank has a capital shortfall of GBP1.5bn relative to its end-2013 7% core equity capital (after adjustments) requirement for major UK banks. Given the Co-op's strategic shift, it has accelerated plans to separate the business into core and non-core divisions and the amount of assets designated as non-core increased in the six months to H113, with valuation adjustments made accordingly. Co-operative Asset Management will manage the effective wind down of assets in the non-core book. The recent results clearly demonstrate the poor asset quality of the legacy assets, which will continue to report losses for several years. They also highlight challenges for management in the longer term to return its core business to sustainable profitability. This will be dependent on effective cost-reduction programmes, improving operating margins and a credible long-term management strategy. Contact: Denzil De Bie Director +44 20 3530 1592 Fitch Ratings Limited 30 North Colonnade London E14 5GN Christopher Keeling Analyst +44 20 3530 1494 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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