Co-op Bank's debt rating downgraded to 'junk' status

The Co-operative Banking Group's debt rating was downgraded to 'junk' or sub-investment status last night by ratings agency Moody's.

Last month the Co-op pulled out of a deal to buy more than 600 bank branches from the Lloyds group. Co-op Bank reported a loss of 674m in March, while the Co-operative Group as a whole made a loss of 599m.

The Co-op announced this morning that Barry Tootell, the bank's chief executive, had resigned and been replaced on a temporary basis by Rod Bulmer. A spokesman said this was not linked to the downgrade and had been planned for some time.

In a statement, the Co-operative Banking Group said: "We are disappointed by the ratings downgrade announced by Moody's. We have a strong funding profile and high levels of liquidity, which are significantly above the regulatory requirements.

"We do acknowledge, like the rest of our banking sector peers, the need to strengthen our capital position in light of the broader economic downturn and the pending introduction of enhanced regulatory requirements, and we have a clear plan to drive this forward throughout the coming months.

"In March, we announced the sale of our life business to Royal London and also our intention to sell our general insurance business.

"In addition to these measures we plan to significantly simplify our business, which will greatly improve our operational effectiveness and also enhance our capital position in the process."

The Co-op said its 'primary current account base' had enjoyed significant growth in recent years.

A Co-op spokesman added that Co-operative Legal Services was not affected by the downgrade.