Co-op says no surprise if bank fails stress test

Co-operative Bank said yesterday it would come as “no surprise” if it failed a health check of lenders by the Bank of England this month.

Britain’s eight biggest lenders are being tested on their ability to withstand a theoretical 35 per cent crash in house prices and surging unemployment and interest rates, with the Bank of England due to announce the results on December 16.

“It will come as no surprise if the bank does not meet the desired capital ratios in the stress tests,” chief executive Niall Booker said.

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“Almost 70 per cent of our customer assets are residential mortgages and it has always been clear to ourselves and the regulator that we are vulnerable to these tests at this point in our turnaround.”

Co-op Bank nearly collapsed last year and fell under the control of bondholders after a £1.5bn capital shortfall was identified.

Industry sources said that Co-op Bank executives are hopeful the lender will be able to convince regulators that it can address concerns by tweaking its existing recovery plan rather than tapping shareholders for extra capital on top of the £1.9bn it has raised in the past 12 months.

In August, the bank said it expected to hold sufficient capital to meet a mild downturn in the economy, such as that typically experienced once every 10 years.