Outlook remains positive
London, 09 December 2021 -- Moody's Investors Service (Moody's) today upgraded the long-term
deposit ratings of The Co-operative Bank plc (The Co-operative
Bank) to Ba3 from B2, and the senior unsecured debt rating of The
Co-operative Bank Finance p.l.c. (The Co-operative
Bank Finance), the holding company of The Co-operative Bank,
to B1 from B3. Moody's also upgraded the standalone Baseline Credit
Assessment (BCA) of The Co-operative Bank to b1 from b2.
The outlook on the senior unsecured debt rating of The Co-operative
Bank Finance and on the long-term deposit ratings of The Co-operative
Bank remains positive.
A full list of affected ratings and assessments can be found at the end
of this Press Release.
RATINGS RATIONALE
Moody's said the two notch upgrade of The Co-operative Bank's
long-term deposit ratings to Ba3 from B2 and the upgrade of The
Co-operative Bank Finance's senior unsecured debt rating
to B1 from B3 reflect several factors, namely (1) the bank's
continued progress towards a more sustainable business model particularly
in relation to improvements int its profitability, as indicated
by the upgrade of The Co-operative Bank's BCA to b1 from
b2, and (2) lower loss-given-failure, resulting
in an additional notch of uplift under Moody's advanced Loss Given
Failure analysis.
Moody's believes that the risk that The Co-operative Bank
will remain loss making has lowered, resulting in the one-notch
BCA upgrade. The rating agency believes that, following the
restructuring over the last several years, charges for exceptional
items will reduce going forward and moderate loan growth and potentially
higher base rates in the UK will support the bank's revenue.
At the same time, Moody's believes that The Co-operative
Bank's profitability will remain very weak and achieving returns
in excess of its cost of capital is highly unlikely in the next 12-18
months (excluding exceptional items). Furthermore, the operating
environment in the UK is still uncertain; the demand for credit might
remain low for longer, and a rate rise might be delayed.
The Co-operative Bank's cost of funding will also increase as a
result of the need to issue additional capital instruments to meet with
its minimum requirements for own funds and eligible liabilities (MREL).
As such, despite the improvements, the rating agency continues
to believe that The Co-operative Bank still lacks a sustainable
business model, which continues to be a key governance consideration
and a key rating constraint.
The Co-operative Bank indicated that it will need to issue MREL-compliant
debt by the end of 2022 to comply with its requirements; this additional
debt, coupled with Moody's expectation that the bank's
balance sheet will only moderately grow, provides additional protection
to The Co-operative Bank's junior depositors and to The Co-operative
Bank Finance's senior unsecured bondholders. This results
in an additional notch of upgrade to the bank's long-term
deposit rating and to the holding company's senior unsecured debt
rating.
OUTLOOK
The outlook on The Co-operative Bank Finance's senior unsecured
debt rating and The Co-operative Bank's long-term
deposit ratings remains positive. The outlooks reflect further
potential improvements in The Co-operative Bank's profitability,
which will make the bank's capital less susceptible to a stress.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The Co-operative Bank's BCA could be upgraded following a continuous
improvement in profitability, leading to durable and sustainable
internal capital generation through earnings. An upgrade of the
BCA would lead to an upgrade of the long-term deposit ratings of
The Co-operative Bank and the senior unsecured debt rating for
The Co-operative Bank Finance.
The Co-operative Bank Finance's senior unsecured debt rating and
The Co-operative Bank's long-term deposit ratings
could also be upgraded following a material increase in the stock of bail-in-able
liabilities issued by The Co-operative Bank Finance or by The Co-operative
Bank.
The Co-operative Bank's BCA could be downgraded following evidence
that the bank will not be able to return to a sustainable level of net
profitability beyond 2021. A downgrade of The Co-operative
Bank's BCA would lead to a downgrade of all long-term ratings of
The Co-operative Bank and The Co-operative Bank Finance.
The Co-operative Bank Finance's senior unsecured debt rating and
The Co-operative Bank's long-term deposit ratings
could also be downgraded if the bank fails to issue additional loss-absorbing
debt.
LIST OF AFFECTED RATINGS
Issuer: The Co-operative Bank Finance p.l.c.
..Upgrades:
....Long-term Issuer Ratings,
upgraded to B1 from B3, outlook remains Positive
....Senior Unsecured Regular Bond/Debenture,
upgraded to B1 from B3, outlook remains Positive
..Affirmations:
....Short-term Issuer Ratings,
affirmed NP
..Outlook Action:
....Outlook remains Positive
Issuer: The Co-operative Bank plc
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to Ba2 from B1
....Long-term Bank Deposits,
upgraded to Ba3 from B2, outlook remains Positive
....Long-term Counterparty Risk Assessment,
upgraded to Ba1(cr) from Ba3(cr)
....Baseline Credit Assessment, upgraded
to b1 from b2
....Adjusted Baseline Credit Assessment,
upgraded to b1 from b2
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed NP
....Short-term Bank Deposits,
affirmed NP
....Short-term Counterparty Risk Assessment,
affirmed NP(cr)
..Outlook Action:
....Outlook remains Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Edoardo Calandro
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Laurie Mayers
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
