Should you worry about the Co-op Bank?
Ratings agency Moody's recently downgraded the Co-op Bank. If you have an account with the bank, should you be worried, and what should you do? James McKeigue reports.
Ratings agency Moody's last week cut the Co-operative Bank's credit rating to junk' status. The move immediately knocked a third off the price of the bank's bonds, was partly to blame for the chief executive stepping down, and unsettled the bank's millions of customers across Britain.
It's more bad news for the Co-op after it had to pull out of a deal to buy 600 branches from Lloyds Banking Group. So just how serious is the downgrade?
The Co-op's woes stem from its ill-fated merger with Britannia Building Society in 2009. Britannia had more bad commercial property loans than anyone realised at the time, and these losses have drained the Co-op's capital, leading it to post a £662m loss last year. Moody's estimates that the bank needs to raise another £750m in capital to be safe. If the bank can't raise this through asset sales or from its parent group, it may need to be bailed out by the government.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It sounds scary, but the first thing to note is that this is a specific problem with Co-op Bank, Britannia Building Society and the online bank Smile. It does not affect the Cooperative Insurance Society, which is ring-fenced. Likewise, any investments that you have taken through Co-op Bank, such as equity funds, are unaffected, as they are part of the
Co-op Insurance Society business too.
Even if you do have an account with Co-op Bank, Britannia Building Society or Smile, you may have nothing to worry about. The bank itself maintains that Moody's has got it wrong. It said it was "disappointed" with the downgrade and noted that "we have a strong funding profile and high levels of liquidity, which are significantly above the regulatory requirements".
So far customers appear to be taking the Co-op at its word, with no evidence of increased withdrawals. Moreover, most analysts seem to think the bank can raise extra capital by selling chunks of the business or getting support from its parent company.
Furthermore, savings in British banks and building societies are protected up to £85,000, while joint account holders receive that amount of protection each. So even if the bank were to go bust, savers would get their money back within
seven days via the Financial Services Compensation Scheme (FSCS).
We've always recommended you keep your exposure to any one bank below the FSCS limit so if you haven't already, make sure you organise your finances so that you don't have more than £85,000 in any one financial institution.
But do note that the Co-op, Britannia and Smile all operate under the same banking licence, so that if you have accounts with all three, you still only receive total protection of £85,000.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
James graduated from Keele University with a BA (Hons) in English literature and history, and has a certificate in journalism from the NCTJ. James has worked as a freelance journalist in various Latin American countries.He also had a spell at ITV, as welll as wring for Television Business International and covering the European equity markets for the Forbes.com London bureau. James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.
-
How the government’s latest leasehold reforms will help you
The government has unveiled plans to abolish leasehold ownership and replace it with commonhold – here is what you need to know
By Marc Shoffman Published
-
King Coal has not been dethroned yet — should you buy?
The demand for coal is only growing, yet investors don’t seem to want to take advantage of the opportunity, says Rupert Hargreaves
By Rupert Hargreaves Published
-
TSB pulls £150 switching deal - what are the alternatives?
TSB has pulled its £150 switching offer, and while there are still other deals on the market, offering up to £200, you will need to act quickly to bag the free cash
By Vaishali Varu Published
-
Nationwide launches £200 switching bonus - plus a linked 8% regular saver account
Earn £377 in one year with Nationwide’s new switching bonus and linked 8% savings account
By Vaishali Varu Published
-
What is Islamic finance?
Sharia-compliant or Islamic finance banks regularly offer great rates for savers, but how do they differ from Western banks?
By Oojal Dhanjal Last updated
-
Watchdog summons banks to explain paltry savings rates
Savings rates trail mortgage rates - and the financial watchdog has summoned banks to a meeting amid concerns of profiteering.
By Katie Binns Last updated
-
Six shared banking hubs open as more branches close - where to find them
News Six banking hubs are now up and running, and aim to plug the gaps left by branch closures. We explain who can use them and if there’s one near you.
By Ruth Emery Last updated
-
Don't buy pre-paid funeral plans, save for death instead
Analysis Funerals are costly, but pre-paid plans have not been a reliable way to prepare for them. Set up your own savings instead, says Ruth Jackson Kirby.
By Ruth Jackson-Kirby Published
-
Beware of expensive pre-paid funeral plans
Advice Farewells are expensive, so many people opt for package deals. But they can be opaque and pricey, says Ruth Jackson-Kirby.
By Ruth Jackson-Kirby Published
-
FCA proposes credit-card payment freeze and £500 overdraft for all
News The Financial Conduct Authority has said that loan and credit card repayments could be frozen for three months, while those affected financially by the virus outbreak will benefit from a £500, fee-free overdraft.
By Nicole García Mérida Published