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03 Aug 2009
Action follows merger with Britannia Building Society
London, 03 August 2009 -- Moody's has today confirmed the A2/Prime-1 bank deposit and senior
debt ratings of The Co-operative Bank and at the same time downgraded
the bank financial strength rating (BFSR) to D+ (mapping to a baseline
credit assessment -- "BCA" -- of Baa3) from C-
(BCA: Baa1). The A2/Prime-1 bank deposit ratings and
the BFSR of D+ of Britannia Building Society (Britannia) are confirmed
and will be withdrawn. Dated subordinated debt of Co-operative
Bank is downgraded to Ba1 from Baa2 while the dated subordinated debt
of Britannia is upgraded to Ba1 from Ba2. The permanent subordinated
bonds (previously Britannia's Permanent Interest Bearing Shares)
are upgraded to Ba3 from B1. The outlook is stable on all these
ratings. This rating action concludes the review initiated on the
ratings of the Co-operative Bank on 12 May, 2009, and
on Britannia's ratings on 14 April, 2009.
These rating actions follow the merger of the two entities, completed
on August 1, 2009. The merger was enabled by the Butterfill
Act that became law in March 2009 and which act now allows mergers between
different types of mutual institutions. The structure of the merger
is such that the assets and liabilities of Britannia have been merged
into Co-operative Bank and the members of Britannia have become
members of the Co-operative Group, the ultimate parent of
Ross Abercromby, the lead analyst for Co-operative Bank at
Moody's said that "the confirmation of the A2/P-1 bank deposit
and senior debt ratings of the bank reflects the increased systemic importance
as a result of the merger, which offsets some of the credit pressures
that the bank is facing. Following the merger the bank's
market shares in deposits and mortgage lending have increased and these,
together with the bank's position in the clearing system, has further
solidified the bank's systemic importance. The combined entity
has total assets of over GBP50 billion and an expanded nationwide franchise,
including over 300 branches."
The downgrade of Co-operative Bank's BFSR to D+ is a
result of the weaker asset quality and higher risk profile of elements
of the BCIG mortgage book at Britannia, although this is mitigated
to a certain degree by the strong funding profile of the combined entity.
Moody's also recognises that the fair valuing of Britannia's
balance sheet should also lead to a reduction in likely losses from this
source in the future. The rating agency also highlighted the challenges
that the bank will face in managing a merger of this size in the current
difficult market conditions.
Subordinated debt is now rated Ba1, one notch below the BCA of Baa3
and the permanent subordinated bonds (previously Britannia's Permanent
Interest Bearing Shares) are now rated Ba3, three notches below
the BCA. These ratings are notched from the BCA and therefore do
not incorporate systemic support, reflecting Moody's view
that systemic support may not be extended to these instruments in the
UK, in the case of financial distress.
The stable outlook on the D+ BFSR reflects that the stronger position
of Co-operative Bank, together with the fair valuing of Britannia's
balance sheet, provides stability at the D+ level. Given
the combined entity's increased systemic importance Moody's
also believes that there is limited downside risk to the bank deposit
and senior debt ratings of the bank and this is reflected in the stable
The principal methodologies used in rating Co-operative Bank and
Britannia are "Bank Financial Strength Ratings: Global Methodology"
and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology", which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating Co-operative
Bank and Britannia can also be found in the Credit Policy & Methodologies
Moody's last rating action on Co-operative Bank was on May 12,
2009, when the BFSR was downgraded to C- from C and the A2
long-term bank deposit and senior debt rating was placed on review
for possible downgrade.
Moody's previous rating action on Britannia was on April 14, 2009,
when the BFSR was downgraded to D+, from C, and placed
on review for direction uncertain, and the A2 long-term bank
deposit and senior debt rating was placed on review for possible downgrade.
Co-operative Bank is headquartered in Manchester, United
Kingdom, and Britannia was headquartered in Leek, United Kingdom.
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's confirms Co-operative Bank at A2/P-1, BFSR downgraded to D+
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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