Co-operative Bank fast-track disposal of £5.5 billion mortgage assets after failing Bank of England stress test

Manchester-based Co-operative Bank one of three banks that have failed the Bank of England’s stress test, resulting in the bank accelerating the planned disposal of £5.5 billion mortgage assets by the end of 2018.

Lloyds Banking Group and Royal Bank of Scotland were found to be at risk should there be another “severe economic downturn”.

Under a revised plan, which has been accepted by the Prudential Regulation Authority (PRA), the bank intends to accelerate the reduction in its risk weighted assets (RWAs) by approximately £5.5 billion by the end of 2018.

The PRA notes the Bank’s recovery plan has ‘achieved the targets set over the last 18 months in terms of building its capital base.’

The results of the stress test, conducted against the Bank’s balance sheet as at December 2013, do not reflect the £400 million capital raising in May 2014 and the disposal of assets by the Bank over the 6 months to June 2014

Under the plan, the Bank does not expect to be profitable in 2014, 2015 and 2016, and expects the non-core division of the Bank to be significantly reduced in size by 2017.

Niall Booker, chief executive of The Co-operative Bank, said: “The Bank is much stronger than a year ago.

“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.

“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.

“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.”