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Moody's downgrades U.K.'s Co-operative bank

Danica Kirka, Associated Press

LONDON (AP) -- The Co-operative Bank on Friday sought to reassure its customers that it didn't need a government bailout after Moody's Investors Service downgraded the U.K. lender's debt ratings to "junk" status.

Concerns about the bank's credit status had been rising since it pulled out of a deal to buy some 630 branches from another U.K. lender, Lloyds Bank.

The ratings agency said late Thursday that the Co-operative Bank's problems stemmed from the 2009 acquisition of Britannia Building Society, arguing that the bank failed to properly assess the losses that the portfolio would experience, with its problem loan ratio increasing to 10.9 percent by the end of 2012, from 8.1 percent in 2011.

The Co-operative Bank is owned by the Co-op Group, Britain's biggest mutual business which is owned by individuals and includes supermarkets, funeral services and pharmacies. It has 340 branches and 1.5 million current account holders.

The bank, which has 30 billion pounds ($46.5 billion) in assets, moved immediately to try to quash public concerns, saying in a statement that it is disappointed by the ratings downgrade, but that it has a strong funding profile and high levels of liquidity.

"In light of today's news, we would like to reassure customers and members that we haven't sought, nor do we need, government support," it said in a tweet posted on the group's account.

Britain is still struggling from the impact of government bailouts to Royal Bank of Scotland and Lloyds, which were rescued during the height of the 2008 financial crisis.

The banks' CEO, Barry Tootell, also resigned Friday, a day after the downgrade. But the bank insisted the decision was an unfortunate coincidence, and a statement on his resignation made no note of Moody's action. Tootell had been in charge of the aborted Lloyds deal.

"Barry took over the role of CEO to lead the banking business through the potential acquisition of the Lloyds Banking Group Verde Business," the company said in a statement.

"Following the recent decision by The Co-operative Group and Banking Group Boards to withdraw from the Verde process, Barry has decided that the time is now right for him to stand down from his role."

The Prudential Regulation Authority, Britain's banking regulator, declined to comment on an individual bank. But the authority is expected to tell banks to increase their capital cushion.

Bank analyst Ian Gordon of Investec said Co-operative is more weakly capitalized than its listed peers.

"On the face of it, it may require capital support from its parent and, as Moody's observed, that may or may not be forthcoming," he wrote in an email. "Aside from that, one would imagine that accelerated balance sheet shrinkage will be the chosen medicine. In this context it is little surprise that it walked away from the Lloyds/Verde deal."