Co-op Bank losses narrow as fight to fix legacy mess continues
THE Co-operative Bank has made inroads into its losses – reducing them to £177m for the half year – but warned the potential contraction of the UK mortgage market could impact future performance.
Overall pre-tax losses have narrowed for the half year to the end of June (H1 2015: £204.2m) as the Co-op said a “viable core bank” is continuing to emerge.
It posted a positive core bank operating result of £17.1m for the period, compared to a loss of £26.2m in the same period last year.
The bank was plunged into crisis in 2013 when its proposed takeover of 600 Lloyds Bank branches collapsed, its chairman Paul Flowers was publicly disgraced buying drugs and the year ended with losses of £2.5bn, and it clinging on for survival.
The legacy issues faced by the bank resulted in pre-tax losses of more than £600m last year. It still expects to report pre-tax losses this year and next, although it forecasts a return to operating profitability for the core bank before the end of 2017.
The troubled Manchester-based bank said that while ahead of plan, today’s half year results include a number of one-off wins, including gains from the sale of the Visa Europe share (£58.1m) and the fair value unwinds related to the merger with Britannia Building Society of £97.2m (H1 2015: £54.3m).
Core bank net customer loans increased by just under £1bn on last year to £15.4bn, as mortgage origination continued to improve with completions for the period totalling £1.5bn.
While Brexit causes no immediate operational impact on the bank, given its UK-only footprint, it did warn that the macroeconomic uncertainty that has followed the EU referendum result could have an effect if there is a contraction of UK mortgage market.
Niall Booker, chief executive, said: “The progress made during the first six months of the year has delivered a small core bank operating profit for the second successive half year period with mortgage originations remaining strong, an improved current account proposition, customer satisfaction scores at their highest level since 2013 and widening jaws between income and costs.”
He added that while losses have reduced year on year, the potential for headwinds in the economy as a whole presents further challenges.
“As noted by others, today’s market conditions are challenging for all retail focused banks and the macroeconomic uncertainty following the result of the EU referendum, including the likelihood of lower for longer interest rates, may restrict our ability to grow revenue in the short term,” he said.
The bank’s cost reduction programme continues, with total operating expenditure reduced to £222.8m for the half year (H1 2015: £262.9m).
Booker said: “As we’ve said many times before, addressing the bank’s historic legacy issues will continue to impact our overall financial performance until the end of our plan period.
“We have always been clear that turning the bank around would be a significant journey of at least five years and so far the overall story remains one of progress and improvement.”
Liam Coleman will become deputy chief executive, succeeding Niall Booker as chief executive in January 2017; while John Worth will succeed John Baines as chief financial officer next month.
