SVM Asset Management managing director Colin McLean said the struggling bank faces between a £1.5bn and £1.8bn hole in its finances and had until the end of the year to put its affairs in order.
Options for meeting the shortfall included forcing bondholders to take a loss and even government assistance as well as selling off assets, he suggested.
He said: “Regarding mortgages, the Co-op is going to be under big pressure to shrink its balance sheet so it is going to try quite hard not to roll over loans.
“As for making new loans, there is no incentive for it to do that at all. It just doesn’t have the capital for it. I would think it would quietly and without much fanfare withdraw a bit from active lending.”
In March, the Bank of England told the UK’s banks it had until the end of the year to raise £25bn of extra capital to absorb any future losses on loans. The Prudential Regulation Authority is yet to release figures on how much capital it requires per bank.
While the Co-op had recruited the right experience to deal with the problem, McLean predicted the bank would face a material shortfall by the end of 2013. One option was for the bank to force bondholders to take the hit and accept some losses on investments, he said, while another was for the government to provide a loan against a certain security.
He said the lender would find it hard to dispose of its non-core assets as planned: “As we saw with RBS in 2007, when you have a weak capital position, even if you have got divisions or assets to sell it’s quite difficult to sell them at a timetable and at a price you want.”
A Co-op spokeswoman said: “We remain committed to the growth of our retail banking business and continuing to compete for and lend to new retail customers.”