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Moody’s waits on Britannia Co-op talks

Moody’s rating agency says it is holding steady on any ratings action regarding the assets of both Britannia Co-operative bank.

Britannia, the UK’s second largest building society, yesterday revealed it was in preliminary talks with Co-operative Bank. It admitted the talks were in the early stages, but did not rule out a “merger of strong equals”.

Britannia chief executive Neville Richardson says the mutual and the co-operative did not need to merge but that both know they could be more successful by coming together.

In its interim results, Britannia posted a significant dip in profits of 40 per cent, which it attributed to arrears with its intermediary mortgage lender, Platform.

The rating agency says it will not be taking action on either groups’ assets due to the current uncertainty of the situation and markets as a whole.

Currently UK legislation does not allow a merger of a building society and a co-operative entity although Moody’s says it understands that a bill is currently in Parliament that would allow this to occur.

The Co-operative Bank is currently rated A2/P-1/C with a stable outlook.
Britannia Building Society is rated A2/P-1/C+ and is on review for
possible downgrade.

However, Moody’s commented that were the talks to advance further then its analysis would focus on a number of areas in particular. Moody’s noted that on the upside the potential merger would provide The Co-operative Bank with a substantially larger distribution network through which to distribute its wider product range, and the potential merger would also create a stronger mutual franchise across the UK.

However, the agency also noted that the financial and funding implications of this transaction, in particular for Britannia’s Platform loan book that is partially funded through the securitisation market, will be an important consideration were it to go ahead.

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