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Co-op Bank could need taxpayer support, says Moody’s

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The Co-op could require taxpayer support for its banking arm after the business had its credit rating downgraded by ratings agency Moody's.

The ratings agency warned that Co-op Bank might need “external support” as a result of new writedowns on bad debts linked to commercial real estate and belated costs linked to its acquisition of the Britannia Building Society in 2009, the Telegraph reports. 

Moody’s warned that the bank faced losses that it will not be able to afford.

The downgrade of Co-op Bank comes weeks after it pulled out of a deal to acquire 632 branches from Lloyds Banking Group that analysts thought could bolster the business.

In a note published on Thursday night, Moody’s said it believed the lender could need help from the authorities to fill any capital hole in its balance sheet, warning it saw “moderate potential for systemic support likely to be forthcoming from the UK authorities”.

Moody’s calculates that the Co-op Bank’s “problem loan ratio” had increased by the end of last year to 10.9% from 8.1% 12 months earlier as it was hit by a deterioration in its commercial real estate portfolio.

The Prudential Regulation Authority (PRA), Britain’s banking regulator, is expected this month to order several lenders to raise new capital.

The PRA’s actions follow a call by the Bank of England’s Financial Policy Committee for banks to raise more than £20bn in new capital.

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