Co-op Bank sells off £1.5bn of risky mortgages

The Co-operative Bank has offloaded £1.5bn of risky mortgages as part of plans to shed assets and boost its capital buffer after failing the UK's stress test.

The lender has completed the first part of a securitisation process to sell a portion of the Optimum loan book that it took on after acquiring the Britannia Building Society in 2009.

The £6bn Optimum portfolio comprises buy-to-let, self-certification and subprime mortgages, which are profitable but require the bank to set aside extra capital.

The sale boosts the bank's capital buffer by nearly one percentage point, to 13.9 per cent.

The Co-op was the only lender to fail the Prudential Regulation Authority's bank stress tests at the end of last year, undershooting the amount of capital needed to weather an adverse economic scenario.

The bank was forced to submit a revised plan to the regulator to bolster capital buffers by selling £5.5bn of risky assets.

The Co-op said this £1.5bn sale forms "a key component" of its aim to accelerate the disposal of non-core assets, including Optimum.

It comes as a deluge of other mortgage assets are up for sale. Barclays is in talks with a number of challenger banks about selling £2bn of risky second-charge mortgages and loans made through its Firstplus brand, according to people familiar with the situation.

UK Asset Resolution, the company tasked with disposing of the government's holdings in defunct lenders Northern Rock and Bradford & Bingley, recently started the process of selling £13bn of mortgages.

And GE, the American multinational conglomerate, announced plans last month to retrench from global financial markets, which involves selling its £7.7bn Home Lending platform of residential mortgages in the UK.

Banks are now moving to offload portfolios as improved economic conditions have buoyed asset prices while a range of buyers including hedge funds and private equity firms are showing appetite.

The Co-op said the bonds, which were sold to a number of institutional investors, yielded about 3.3 per cent on average.

Grahame McGirr, a managing director at the bank in charge of its non-core division, said the sale demonstrates the good progress it is making to "reduce its risk profile and build resilience".

The remainder of Optimum will be sold over the next couple of years and could take the form of a direct asset sale, the bank said.

About 5 per cent of the Optimum portfolio has customers in arrears over a 90-day period.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation