It’s been a pretty shocking morning for Co-operative Bank and its customers.
Co-op’s chief executive resigned following the failure of the bank to complete a deal to acquire Lloyds TSB branches.
And then the ratings agency Moody’s cut its credit rating to “not prime”, better referred to as “junk bond” status.
Moody’s make some interesting observations in their report accompanying the downgrade, including their opinion that the bank needs hundreds of millions of pounds of additional capital, to absorb potential future losses.
They also pointed out that the prospects for substantial profits growth at Co-op bank are limited in the current economic climate.
Should savers with Co-op Bank be spooked by the resignation and credit rating downgrade? Probably not.
The Co-operative Bank plc is covered by the Financial Services Compensation Scheme (FSCS), which would pay compensation of up to £85,000 to eligible depositors in the event of the Bank becoming insolvent.
The insolvency of this or any other UK bank is extremely unlikely.
Savers should tread carefully where they hold savings in excess of this compensation limit with The Co-operative Bank plc.
They also need to be aware that smile and Britannia are trading names of The Co-operative Bank, so savings held with these groups would also count towards the FSCS compensation limit.
Since the global financial crisis, we believe most savers have become more aware of FSCS compensation limits and no longer rely on the financial strength of the bank alone when choosing their savings accounts.
A sensible savings strategy involves spreading your deposits between banks with separate banking licences, as well as shopping around to find the most competitive interest rates and reviewing this regularly.
