Co-Op Bank Halts Loans to New Business Clients After Downgrade

Co-Operative Bank Plc said it will halt loans to new business customers, two weeks after Moody’s Investors Service cut the British lender’s rating to junk.

The bank will continue to lend money to existing corporate and consumer clients and remain open to new retail borrowers, the company said in a statement today.

The lender, which traces its roots to Britain’s 19th-century industrial north, was cut six steps by Moody’s, which cited a capital shortfall for its decision. Co-Operative last month abandoned a 750 million-pound ($1.1 billion) bid for 632 Lloyds Banking Group Plc (LLOY) branches after regulators expressed concern the company lacked capital.

“This decision is part of our commercial strategy to play to the traditional strengths of the bank,” Euan Sutherland, chief executive officer of parent Co-Operative Group, said in the statement. “It will enable us to focus our energies and capital on both supporting our existing corporate customers and on growing our presence in the retail banking market.”

On May 9, Moody’s lowered the lender’s deposit and senior debt ratings to Ba3/not prime from A3/prime, three steps below investment grade, and said it may reduce the ratings further. Moody’s said Co-Operative Bank may require aid if losses stemming from its 2009 purchase of the Britannia Building Society increase and deplete the lender’s already low capital.

Co-Operative Bank’s core Tier 1 capital ratio under the latest round of Basel rules was 6.7 percent in January, less than the 7 percent target set by U.K. regulators, Moody’s said. The Prudential Regulation Authority has yet to disclose how much capital Co-Operative will need to raise after the regulator identified a 25 billion-pound shortfall across the industry.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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