Last minute PPI rush hits bank’s third quarter performance

The Co-operative Bank said it was hit with higher than anticipated charges linked to the PPI deadline in August.

Announcing a third quarter trading update covering the nine months to September 30, the Manchester-based bank said it estimates it received around 15% of its total volume of PPI complaints in the week leading up to the deadline, or afterwards.

In September it said it expected to make a PPI provision of £55m-£75m.

Following that announcement it revealed that it has now recognised a charge of £60m, which is within the range originally announced.

However, it said that, due to the high volume of complaints received, processing is still ongoing and the bank will not know the final cost of PPI remediation until the first half of 2020.

Elsewhere, the bank reported strong core mortgage growth with balances up 3.4% driven by £2.6bn of new business completions and increased levels of customer retention.

Core income is stable at £285.2m, compated with £284.2m in the third quarter of 2018, although total income was down 2% to £286.8m driven by de-risking of the bank’s legacy portfolio.

Operating expenditure is broadly flat at £281.3m, against £280.2m in the same period last year, as management actions to reduce costs are offset by continued investment in brand marketing.

The loss before tax increased 36% to £118.6m, up from £87m last year, which primarily reflects the PPI charge of £60m. However, Co-op Bank said it has made an underlying profit of £2.3m in the year-to-date.

Since the third quarter reporting period, the bank received a revised total capital requirements – the total amount of capital that banks and investment firms are required to hold – from the Prudential Regulation Authority (PRA).

The requirement, effective from November 2019, has reduced from 16.69% and is now set at 14.54% of risk-weighted assets (RWAs).

At the third quarter 2019, the bank is reporting a surplus to TCR of £387.8m. Applying the new requirement, the surplus to TCR on a pro-forma basis would be £463.9m, a £76.1m improvement.

Chief Executive Andrew Bester said: “We are continuing to make positive progress and delivering our plan in what is a challenging UK retail banking market, against ongoing economic uncertainty.

“We continue to put the needs of our customers first, making enhancements to our customer journeys.

“We have achieved ongoing growth in our mortgage book thanks to some agile pricing and strong broker relationships, supported by growth in both our retail franchise and SME deposits.”

He added: “I am pleased with the progress we are making in simplifying and de-risking the bank.

“Our capital position remains ahead of guidance, with a strong CET1 ratio. I am encouraged by the recent reduction in total capital requirements as we continue the transformation of the bank.

“While we have incurred charges in respect of higher than expected PPI complaints in the third quarter, our underlying performance is encouraging and many of the issues that are key to our development in future years are being addressed.

“Significant improvements to our digital proposition, progress towards the separation of our IT infrastructure from the Co-op group, and continued investment in our distinct ethical brand have supported our resilient business performance this quarter.

“A market where consumers are seeking greener and ethical choices presents an opportunity for the Co-operative Bank. These actions will provide a platform for the bank’s development in future years.”