By Huw Jones
LONDON, June 12 (Reuters) - Britain’s Co-operative Group needs to be made more resilient after the bank’s surprise recent credit rating downgrade, a senior Bank of England official said on Wednesday.
Andrew Haldane, BoE director of financial stability said Co-op’s situation was “plainly difficult.”
He said a multi-notch downgrade to its credit rating to junk status by Moody’s had come as a surprise to almost everyone but so far there had not been the sharp outflow of liquidity that some might have feared.
“But further needs to be done to put Co-op in a situation of resilience and sustainability,” Haldane told parliament’s Treasury Committee, without elaborating.
Last week the Co-op Group appointed a new finance chief and chairman for its banking division as it tries to persuade UK regulators it can plug a capital gap without state help.
Haldane was being quizzed by lawmakers on his reappointment to the BoE’s Financial Policy Committee (FPC) whose task is to spot wider risks in the financial system.
The FPC is requiring UK banks to collectively plug a 25 billion pound ($38.99 billion) capital hole by the end of this year, with much of this accounted for by the Co-op bank, and part-state owned Royal Bank of Scotland and Lloyds .
Donald Kohn, who has been reappointed as an external member of the FPC, told the treasury committee that the FPC was late in telling banks exactly how much more capital they should hold.
Analysts say the capital shortfall at the Co-op could be as much as 1.8 billion pounds.
The Co-op is selling its life insurance business to Royal London for 220 million pounds and has put its general insurance business up for sale.
The Co-op is considering more drastic action such as cutting future payments to bondholders to help build up its capital buffer.
It has also stopped taking on new small business customers.
The clock is ticking as Britain’s banking regulator wants to approve plans from the Co-op and other banks on capital raising by the end of this month.