Newspaper article International Herald Tribune

Once a Symbol, Co-Op Bank Trips

Newspaper article International Herald Tribune

Once a Symbol, Co-Op Bank Trips

Article excerpt

Promoted by the chancellor of the Exchequer as the small bank that could , the British lender has had its credit rating cut to junk because of a portfolio of bad housing loans.

Hoping to increase competition in the banking sector, British politicians on both sides of the aisle were recently hailing Co- Operative Bank as the small alternative to big lenders like Barclays and Royal Bank of Scotland.

Now, Co-op Bank is in trouble.

Last week, the ratings agency Moody's Investors Service cut its rating for the bank by six levels, to "junk" status, and said the bank could require "external support" if losses from its risky commercial real estate loan portfolio grew much more. The next day the bank's chief executive, Barry Tootell, resigned.

Co-op Bank's troubles are an embarrassment for George Osborne, the chancellor of the Exchequer, who vowed to support the growth of smaller banks to improve competition and the stability of the banking sector. The country's five biggest banks control 85 percent of personal checking accounts.

During a speech in February in which Mr. Osborne said he wanted to see "more banks on the high street, so customers have more choice," he mentioned Co-op Bank by name.

The bank is the main subsidiary of the Co-operative Group, one of the world's largest cooperative businesses. It is owned by seven million members, mainly its employees and customers. Apart from the bank, the group also owns funeral homes, pharmacies, food stores and farms.

Much of the government's hope to bolster Co-op Bank was based on its planned purchase of 632 branches that Lloyds Banking Group had to sell to comply with European competition rules after receiving a government bailout in 2008. The purchase would have tripled Co-op Bank's network of branches to about 1,000.

But Co-op Bank pulled out of the Pounds 750 million, or $1.1 billion, deal in April, almost a year after agreeing on the terms, citing the economic environment and increasing regulatory requirements. …

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