The Cooperative bank has been forced to put lending on hold to small businesses that submit new applications as part of measures to try to repair some of the void left in its capital after its credit rating was pretty much destroyed overnight. The bank’s credit rating was downgraded by 5 steps despite protests by it that it was perfectly fine.
The bank has had to put any new loan applications on hold for small businesses which looks bad when this is the exact opposite of what is being encouraged by the government in a bid to stimulate the economy, although it has said existing applications will still be processed while it is in talks with the Prudential Regulation Authority about how to bolster the banks shortfall in capital.
It is believed that one possible solution would be for the bank to see the bank separate its good and bad assets, to hopefully improve the standing of the bank sans toxic assets. The discussions with the PRA could last between four and six weeks.
The Cooperative bank is currently being run by Rob Bulmer, but it is believed that the PRA will want to see a new chief executive put in place as soon as possible. The bank is also seeking a chief risk officer and a chief financial officer to replenish the ranks.
The bank has sold its life assurance section of the business to Royal London which should raise around £200million towards the estimated deficit of £1.8billion that currently plagues the brand. It is also looking to sell of large chunks of its non-core lending that includes a book of loans called Optimum and a huge sum of bad loans that are in its property portfolio from when it took over the Britannia Building Society.
No one is sure to what extent Co-op, the parent brand will do to helps it child company.