Following the collapse of its bid for 632 Lloyds Banking Group branches, Co-op Bank was downgraded by credit ratings agency Moody’s last week and chief executive Barry Tootell stepped down from his role at the company.
The new branch network was meant to signal the Co-op’s rise from also-ran into a big league competitor for the high street banks. However, recent events have raised many questions over its future strategy and the impact on the mortgage market.
The problems stem from loans – largely commercial lending and sub-prime mortgages – made by the former Britannia Building Society, which was acquired by the Co-op during the financial crisis. The bank has a £750m black hole in its finances and Moody’s suggests it is close to needing support from the government.
However, the lender is putting on a brave face. It denies it will need a bailout and insists that all is running as normal at present.
“Recent announcements do in no way impact our ability to service mortgage customers and there are no changes to the products or services we offer,” a bank spokesperson told Mortgage Solutions.
But what does this mean for its future strategy? Will the Co-op pull back from the mortgage market while it fixes internal problems or, given the collapse of the branch deal, be forced to better utilise its intermediary brand Platform in order to grow its mortgage lending?
The latter would be welcome news for the intermediary sector given that Co-op’s use of the broker channel plummeted from 45% of its total mortgage lending in 2011 to just 30% last year.
Earlier this year I saw Colin Welby, Co-op’s head of partnership, speak of the bank’s desire to increase lending through the broker channel. He said that was because its direct channel at that time was restricted. Now, following the branch deal collapse, that will remain the case for the foreseeable future.
“In 2013 you will see increased lending coming from the Platform brand,” he said in January.
“We will be placing any increased lending through intermediaries because we do not have the resource to broaden our distribution any other way.”
It remains to be seen whether that statement still stands following recent events but the Co-op’s new direction should become clear when new chief executive Euan Sutherland completes a full review of the business in the next few months.
