Co-op Bank ‘making progress’

THE Co-op Bank says it is making progress in its quest to strengthen its balance sheet, cut costs by closing branches and offer better products.

The loss-making Manchester-based lender, whose recovery after a torrid last two years is still very much work in progress, said it had sold off £1.5bn worth of risky mortgages in its Optimum loan book that it took on after its merger with the Britannia Building Society in 2009.
 
The deal is strategically important as it will allow the bank to de-risk its balance sheet after having failed a regulatory stress test last year. The Optimum mortgages includes buy-to-let, self-certification and others considered as ‘sub prime’. Although they are profitable, they require the bank to set aside extra capital in case of an economic crisis.

Chief executive, Niall Booker said: “During the first quarter of this year, we have continued to progress our turnaround plan based on de-risking the business and reshaping the bank around our individual and small business customers.

“The initial securitisation of part of the Optimum portfolio is an important step in further reducing our risk profile and increasing our resilience.

“In addition, although the core bank remains very much a work in progress, we are beginning to see performance improve and the launch of a series of competitive product offerings is testament to how far we have come in the last year. “

Looking ahead, Booker sounded a cautious note, adding: “There is considerable work ahead to address legacy issues across all areas of the business. Furthermore, the bank remains exposed to external macroeconomic conditions, including the timing of future interest rate rises and market conditions to support successful asset disposals, but we are pleased with the progress management has made in the areas we control and in what remains the early stage of our recovery.”

The bank said mortgage applications and completions were “above plan expectations” during the three months to the end of March with completions totalling £0.5bn.

In a bid to woo more customers, the bank is offering some very competitive mortgage rates for some  homebuyers, including fee free proposition and the UK’s lowest-ever headline two-year fixed rate of 1.09%.

The lender said its cost reduction programme is on track and the 57 branch closures it announced in January would be completed by July.