Britannia’s loan book ‘key factor in Co-op woes’

Andrew Bailey, chief executive of the Prudential Regulation Authority, wrote to MPs to say a big part of a £1.5bn black hole in the Co-op’s balance sheet stems from the Britannia’s risky assets.

Mr Bailey’s letter to Andrew Tyrie, chair of the Treasury Select Committee, follows evidence from former Britannia boss Neville Richardson earlier this month, when he insisted the building society was a success when it was taken over by the Co-op in 2009.

MPs are probing the collapse of the Co-op’s attempt to buy more than 630 branches from Lloyds in April. It later emerged the Co-op Bank needs to find £1.5bn of capital, which the customer-owned group is attempting to plug by forcing losses onto bondholders.

Mr Bailey said that while Britannia is not solely to blame for the bank’s problems, the building society’s assets are behind more than half the bank’s total loan losses of £970m between 2012 and the end of June 2013. He cited £682m of losses on impaired non-core loans during the 18 months.

Mr Bailey said more than 75 per cent of the Co-op’s non-core loan losses in 2012 and around 85-90 per cent of non-core loan losses in the first six months of this year relate to Britannia assets.

“The former Britannia assets were those on the bank’s balance sheet that were most vulnerable to further stress,” he wrote.

“The risk profile of the remaining Britannia assets were, and remain, a key factor in our assessment of the Co-op Bank’s current capital position.”