Co-op Bank needs an extra £400m
THE Co-op Bank needs a further £400m after “unearthing” a range of liabilities connected to payment protection insurance, interest rate swaps and breaches of the Consumer Credit Act.
Late last year it agreed a £1.5bn rescue deal with bondholders and the Co-op Group designed to clear up its financial problems.
It plans to raise £400m with a share issue but the details have not yet been finalised.
In an update the bank said it made a pre-tax loss of £1.2-£1.3bn last year and shed 1,000 staff, 14% of the total. The loss does not take into account the £688m raised in last year’s bail-out.
It said: “The bank expects to report full year charges relating to conduct and legal documentation issues amounting, in aggregate, to approximately £400m in 2013. These conduct and legal documentation issues include legacy PPI business, mortgage product first payments, interest rate swaps, third party insurance and technical breaches of the Consumer Credit Act.
“In addition, one-off costs and processes associated with the separation of the Co-operative Bank from the Co-operative Group have proved more costly, more time consuming and more complex than anticipated. Provisions for the estimated separation costs from the Co-operative Group are expected to be approximately £40m in 2013.”
These extra costs have reduced the bank’s tier one capital, prompting the fundraising. The bank said its underlying performance in the second half of 2013 was in line with management’s expectations and its liquidity position remains stable.
Chief executive Niall Booker said: “The new executive team brought in just nine months ago is continuing to review aspects of the Co-operative Bank’s legacy operations, assets and liabilities. As a result of this continuing review we are unearthing a range of issues which the new executive team is having to address. Whilst these risks were identified in the liability management exercise prospectus the review means we are now quantifying the financial impact of some of those risks.
“The result of providing for these items together with the cost of separation from the Co-operative Group is that the starting capital position of the bank for the 4-5 year recovery period is weaker than in the plan announced last year. The proposed capital raise would enable us to reset this starting point and continue with the execution of our original business plan.
“The objectives of this plan remain unchanged and there are some early indications of progress. We have started to simplify the business, reduce costs and de-risk assets as we drive the change needed to return to our roots as a bank focused on our retail and SME customers. However, there remain significant challenges ahead.”
