Retail banking company the Co-operative Bank, which almost collapsed in 2013 following the discovery of a black hole in its accounts, has revealed that it does not expect to make a profit for another two years.
The bank’s legacy issues are said to be linked to losses on commercial property loans, which stemmed from Co-op Bank’s 2009 merger with the Britannia building society. In addition several top executives left the bank, including its former chairman Paul Flowers who was involved in a drugs scandal. Outside investors propped up the bank and it is now 80% owned by hedge funds, with the remainder held by the Co-op Group. The bank is now under new leadership and is headed by chief executive Niall Booker.
It was reported on Thursday that the bank’s revenue fell and pre-tax profits have widened to GBP204.2m, from GBP77m the year before. Its operating income dropped to GBP236m from GBP307m in the previous the year. The bank increased its spending on projects to improve systems and processes to GBP102m, from GBP69m.
A major cost-cutting programme is said to have reduced the ethical bank’s operating expenses by GBP37.4m, partly by reducing the interest rate paid on customer deposits. This is resulted in an improvement to its margins from 1.2% to 1.32%. The bank also shed excess deposits that it did not need to fund its lending.
According to reports, the Co-Operative bank, which reportedly sold its services based on ethical practices, was recently criticised by financial regulators for misleading investors, but it escaped a GBP120m fine, however, because the regulator said it needed all the money it has to strengthen its balance sheet. The bank has set aside a further GBP10m to compensate customers mis-sold loans and packaged accounts, taking the charge to GBP49m.
Booker was cited as saying that the plan to rebuild the Co-op Bank was on course and that current account closures had stabilised.
He stated: “We must focus on keeping our products simple, continuing to reinforce risk management and systems, strengthening our culture and maintaining our high levels of service. The transformation of the bank remains challenging.
“However, this should not diminish the progress made against our strategic plan. The actions we are taking are creating a resilient bank that can stand alone, distinguished in the marketplace by its values and ethics.”