Transformation programme pushes bank into loss, but long-term picture is positive

Andrew Bester

Co-op Bank today has reported a loss of £140.7m for the year to December 31, 2018, compared with a profit of £216m the previous year, as it continues on its transformation process.

The bank’s adjusted loss before tax last year was £140.3m, representing the underlying performance, excluding the income statement gain from restructuring and recapitalisation.

However, the Manchester-based bank said it has made an operating profit – £14.9m compared with an £84m loss in 2017 – for the first time since 2013.

And it said it is well placed to develop its SME banking business, being part of the incentivised switching scheme for Williams and Glyn customers.

During the year the bank carried out a drawdown of £1bn Term Funding Scheme liquidity in the first quarter, which supported positive new lending in the mortgage portfolio, with the highest year for mortgage completions since 2010.

It was also selected to be part of the incentivised switching scheme to incentivise RBS’s Williams and Glyn SME banking customers to switch their business current accounts.

Operating costs reduced by 13% to £374m, although the bank reports that its net customer redress charge of £31.7m, driven primarily by sustained levels of PPI activity, is above the levels previously forecast.

It said the current provision reflects the latest view of remaining PPI redress and associated costs until the 2019 time-bar.

The bank’s CET1 ratio has reduced to 22.3% from 24.7%, due to the loss incurred in the year.

CET, or Common Equity Tier, is the core measure of a bank’s financial strength from a regulator’s point of view.

Chief executive Andrew Bester said today: “The backdrop of political uncertainty and intense competition has created an extremely challenging banking environment but, despite this, we have made sizeable progress in the bank’s transformation this year, reaching a key milestone by recording an operating profit for the first time since 2013.

“While our ongoing investment in transformation means continued losses overall, this is nevertheless an important step towards achieving our goal of sustainable profitability.

“We have one of the strongest CET1 ratios amongst challenger banks and a significantly de-risked balance sheet.

“This has provided us with the platform to reinvigorate our retail and SME banking businesses, driving positive net mortgage lending of £1.4bn and our highest year for mortgage completions since 2010.”

He added: “Developing our SME banking business is a key priority for the future and we are pleased to be part of the incentivised switching scheme for Williams and Glyn customers.

“We believe our brand and track record in this market make us an attractive choice for SMEs looking for an alternative to the ‘Big Five’ banks and we are determined to help drive deeper competition in this market.”

He went on: “In a market that lacks distinctive challenger brands, our commitment to the values of the co-operative movement continues to set us apart and 2019 will see renewed brand investment.

“We will also look to build on the strong service culture provided by our branch network and telephone services and invest further in digital innovation to make customers’ lives easier.

“In the short term, it remains a difficult environment for all banks and we continue to expect pressure on income, but longer term we have the right ingredients to achieve sustainable success.

“With a clear strategy, dedicated colleagues, a strong brand, and the commitment of our board and shareholders we are determined to build on our improved business performance and to realise our vision to be an efficient and financially sustainable UK retail and SME bank distinguished by its values and ethics.”

Click here to sign up to receive our new South West business news...
Close