The Co-operative Group’s much-publicised banking woes will not affect its food business, it has insisted.
In a terse statement to The Grocer, The Co-op said Moody’s “disappointing” downgrade of The Co-op Bank to ‘junk’ status, amid reports of a capital hole of between £800m to £1.8bn, “does not impact The Co-operative Food”.
Despite the group’s reassurance, Standard & Poor’s this week revised its outlook on The Co-op Group’s entire business to ‘negative’ from ‘stable’.
Although it said the society’s financial services businesses were “ring-fenced from the rest of the group for regulatory purposes”, The Co-op Bank’s problems “could impede the group in the execution of its financial objectives”.
“We believe that a non-financial company such as the Co-op Group would have limited capacity to provide sizable capital, and/or liquidity support, to banking operations of the size of the Co-op banking group,” S&P said in a note.
“While our base-case credit scenario still factors in a low likelihood of any support from the trading group to the banking group, we cannot completely preclude this possibility from our credit analysis of the trading group. We also understand from management that even if the trading group wanted to contribute capital to the banking group, the former’s loan documentation could potentially impose certain restrictions on this.”
It added: “The negative outlook reflects our view that the Co-op Group’s need to strengthen its capital position may increase the execution risks surrounding the trading group’s deleveraging plans. We are not aware of any intention of management to support the banking group using the trading group’s financial resources.”
The Co-op Group reported an 89% drop in underlying profits to £54m in the year to 5 January due to heavy losses in its banking business.
Last week’s downgrading came just two weeks after The Co-op Bank pulled out of a deal to acquire 632 Lloyds TSB branches.