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Co-op Bank’s debt rating downgraded to “junk” status

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Customers of the Co-operative Bank have been thrown into doubt after the bank’s debt was downgraded to junk status last week by ratings agency Moody’s.

The move comes amidst concerns that the bank would need “external support” if it was unable to strengthen its non-core portfolio and shore up its overall financial position.

The Manchester based bank has already seen a tough few months, posting losses of £600 million in March of this year, followed by the news in April that it would have to pull out of a deal which would have seen them buy 632 branches from the Lloyds Banking Group.

It has been the scale of the downgrade which has caused waves in the City; Moody’s has downgraded the bank by 6 points on the scale, which will mean that any further borrowing that the bank does on the financial markets will be at a higher rate.

The move led to the immediate resignation of Co-op banking boss, Barry Tootell, who has been replaced temporarily by Managing Director of Retail Banking for the group, Rod Bulmer.

Despite the downgrade, Co-operative has said they are “disappointed” in Moody’s actions, claiming that they have “a strong funding profile and high levels of liquidity” and has taken steps to fill the shortfall by selling the insurance arm of the business.

The bank has also re-assured customers that their money is safe and that there will no bailout required, posting on Twitter that they had not sought, and would not be seeking in the future, any government help.

The Co-operative has a customer base of 6.5 million customers and held a high reputation for their standards of customer service and commitment to ethical banking. Although customers may have shown concerns about the downgrade, it seems unlikely that there will be a mass migration away from the Co-op to other banks.

The future at the moment may seem unclear for the banking arm of Co-operative, however they have stated that they are aware that they need to “strengthen their capital position” and also have a “clear plan to drive this forward throughout the coming months”.



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