- Capital ratio fell in quarter as pace of asset sales slowed
- U.K. lender said core business posted profit in first quarter
Co-Operative Bank Plc, the British lender that ceded control to its creditors almost three years ago, warned of slack demand for assets it must dispose of in order to meet its regulatory capital requirements by 2020.
The bank experienced “weakness” in demand and pricing for some loans, which may persist to hurt the pace and cost of its deleveraging program, the Manchester, England-based lender said in a statement on Friday. The common equity Tier 1 capital ratio, a measure of financial strength and a key indicator of the bank’s recovery from near collapse, slipped to 14.1 percent at the end of March from 15.5 percent at the end of December.
Co-Op Bank said earlier this year it won’t meet capital requirements for several years after reporting widening annual losses, deferring its return to health with a fresh plan agreed with the Bank of England’s Prudential Regulation Authority. The lender had to be rescued by its bondholders in 2013 after faltering under the weight of bad loans, ceding control to a group of hedge funds including Silver Point Capital LP.
“The overall execution of the turnaround plan remains challenging,” Chief Executive Officer Niall Booker said in the statement. “Market conditions for asset sales meant that the pace of deleveraging in non-core slowed. Macroeconomic conditions remain uncertain which may affect the bank’s operating environment during the course of the turnaround plan.”
Co-op Bank said the parts of its business it wants to keep made a profit in the first quarter compared with a loss in the same period a year ago, without giving further details. Total lending at the core bank increased to 15.2 billion pounds from 14.7 billion pounds at the end of December.
While Booker, whose contract with the bank is due to expire at the end of this year, has been cutting costs and selling assets to raise cash, Co-op Bank failed stress tests from the BOE in December 2014. The bank said Friday that costs could increase as it redraws its pay policies to retain staff, amid a block on bonuses imposed because it fell short of the central bank’s capital rules.
Co-op Bank faces volatile markets and a potential glut of supply as European lenders including Barclays Plc and Deutsche Bank AG try to offload loan portfolios and business units that no longer fit their strategy. The lender reduced total risk-weighted assets by 400 million pounds to 7 billion pounds in the three months through March.