Fitch Ratings has downgraded the Co-operative Bank from BB- to B and placed it on negative watch as it casts doubt on the firm’s recovery plans.
Earlier this month, the Co-operative Bank unveiled a plan to close at least 15 per cent of its branch network alongside a rescue deal which will see bondholders and hedge funds take over 70 per cent of the bank.
Fitch says the Co-operative Group’s reduced stake of 30 per cent could damage the bank’s brand and lead to loss of UK business.
The ratings agency has welcomed the bank’s cost cutting plan and sales of its insurance businesses earlier this year but has concerns over the firm’s profitability, which could hamper plans to fill the capital shortfall.
It also said a necessary £500m investment in the bank’s creaking IT systems over the next three years will hit its credit worthiness.
Fitch has put the Co-op Bank on negative watch because of the “significant downside risk” of further credit impairment its commercial loans book.
The Co-op abandoned plans to buy 632 Lloyds Banking Group branches in April, and in June revealed it had a £1.5bn capital shortfall.
Your Mortgage Decisions director Dominik Lipnicki says: “The Co-op Bank has lost its way, and efforts to resolve its issues seem to have come late in the day.”