‘Positive first half’ despite another loss, says Co-operative Bank chief

Andrew Bester

The Co-operative Bank saw first half losses remain static, it reported today.

The Manchester-based business said statutory losses before tax were £38.5m, compared with £39.5m in the first half last year. Underlying losses of £2.8m compared with an £11.2m profit.

It said: “Our priority remains to return the bank to a sustainable profit as soon as possible.”

Core income grew 1% year-on-year.

As previously guided, the bank said it has seen a reduction in customer net interest margin to 1.83% (1H 18: 2.08%).

This is due to reductions in mortgage margins as new business pricing remains competitive, continued attrition of the SVR book and the interest expense attached to the Tier 2 debt.

Total income has remained broadly flat at £191.2m, compared with £192.9m a year ago, which is ahead of expectations.

As previously signalled, operating expenditure has risen by 5% to £193.2m where efficiencies are offset by other costs, including additional brand investment.

Total strategic investment spend has increased by 16% to £52.7m, up from £45.4m, as the bank simplifies the business, including separation from the Co-operative Group – which remains on track – and enhancing its digital capability.

The legacy net customer redress charge of £2.5m, relating to Payment Protection Insurance (PPI), brings the remaining PPI provision to £38.7m.

The provision will be reassessed in the second half of the year.

Looking ahead, the bank said: “We remain focused on reducing operating expenditure and expect 2019 to be ahead of previous expectations due to a reduction in continuous improvement project costs.

“As a result we anticipate the cost:income ratio to be better than previously guided at less than 110% (previously c.115%).

“We have driven efficiencies in the investment portfolio and expect total cash spend to be lower than previously guided at £140m-150m (previously £150-170m).

“We expect to see continued growth in core customer assets and liabilities, but to a lesser extent than previously thought as we look to balance the trade-off between volume of new business and margin in today’s competitive environment.”

Chief executive Andrew Bester said: “We’ve delivered a positive first half financial performance that is ahead of expectations, and although loss-making overall, is near break-even on an underlying basis.

“We have seen margin headwinds this year so far, but our safe lending book provides resilience in what is a challenging retail banking market and an ongoing uncertain political and economic backdrop.

“Overall, our business has proved resilient, and as a result we have upgraded our expectations in relation to our CET1 and cost:income ratios for the remainder of the year.”

He added: “We are making good progress against our transformation strategy, including investing in our digital capability, the separation of our IT systems from the Co-operative Group and commencing our mortgage and savings re-platforming.

“The successful issuance of £200m Tier 2 debt in April, with strong support from our investor base was a significant step towards delivering our commitment to achieve MREL compliance within the industry-wide timelines.

“I see our SME banking business as a key area for future growth and we were delighted to win £15m of funding from the Banking Competition Remedies, which will enable us to accelerate improvements in our product and digital propositions for SME customers.”

He said: “At a time when consumers are increasingly seeking ethical choices, our brand resonates.

“We plan to further develop our multi-media advertising campaign ‘For People With Purpose’ launched in May, reinforcing the co-operative values and ethics that we know are important to our customers.

“During the months ahead, we will build on our achievements, focusing on cost reduction, franchise growth and investing for the future to deliver a sustainable, profitable Co-operative Bank.”

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