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UK's Co-op Bank likely to miss capital target

U.K.-based Co-operative Bank Plc said it will likely miss the individual capital guidance set for it by a U.K. regulator until at least 2020.

The bank said it expects to report a common equity Tier 1 ratio above 10% and a total capital ratio of approximately 17% as of Dec. 31, 2016, but cited various factors affecting its medium-term outlook, including the interest rate environment, management of its transformation portfolio, the timing of new IRB model approvals, conduct charges and deleveraging. These mean that its CET1 ratio is likely to fall below and remain below 10% in the medium term, and that it will not meet its individual capital guidance throughout its planning period to 2020.

The bank said in a third-quarter trading update that the Prudential Regulation Authority had revised its Pillar 2A capital requirement to 14.1% of risk-weighted assets. It had said in its midyear report that the PRA was mandating a Pillar 2A buffer of 12.0% of RWAs, or £864 million, of which 6.7% must be CET1 capital.

It said at the time that it was not in compliance, which means that it is unable to make new commitments to pay variable compensation.

However, Co-op Bank added in its most recent filing that it expects to meet its Pillar 1 capital requirements — basic thresholds set for all banks — and maintain sufficient liquidity.

The bank previously hired PricewaterhouseCoopers to help it sell a portfolio of loans, and cut 200 jobs in an effort to strengthen its balance sheet and slash operating expenses.