Co-op Bank to raise extra £400m after hole discovered

Co-op Bank

Related Stories

The Co-op Bank plans to raise another £400m by issuing new shares following the discovery of additional costs related to past misconduct and poor documentation.

The biggest part of the additional costs relates to PPI mis-selling and lapses in the provision of mortgages.

The bank said the discovery meant it would make a loss of £1.2bn to £1.3bn for 2013.

It will release its full accounts in April.

"The starting capital position of the bank for the four to five year recovery period is weaker than in the plan announced last year," said chief executive Niall Booker.

Start Quote

One important question is why these misconduct costs did not come to light last year”

End Quote

Mr Booker said the issues had already been discovered in its Liability Management Exercise prospectus, but said it was only now quantifying the financial impact of some of the risks.

"When I heard about this my jaw dropped because I did think that at last this was a bank on the way to recovery," said BBC economics editor Robert Peston.

Rescue

The Co-op Bank had to be rescued last year after it was left with a £1.5bn capital shortfall, with many of its troubles stemming from the merger with the Britannia building society in 2009.

In November last year, it announced that a group of private investors, made up mostly of hedge funds, would inject nearly £1bn into the bank in exchange for a 70% ownership stake.

Later that year the company was hit by a separate scandal when its chairman Paul Flowers was arrested in connection with a drugs supply investigation.

The group is cutting staff and selling off parts of its business in an effort to survive.

'Simplify'

The Co-operative Bank said that as of the end of 2013, it had cut 1,000 staff equating to about 14% of its total.

It also said it had reduced its non-core assets by around £2bn.

It said raising the extra £400m would enable it to continue with the execution of its original business plan.

"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," added Mr Booker.

More on This Story

Related Stories

From other news sites

* May require registration or subscription

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    HOUSE PRICES 11:09:

    Within the latest figures from Rightmove is some interesting trend data. Wales, the West Midlands and the North West are lagging behind the rest of England and Wales. The three regions showed falls in asking prices of between 0.8% (the North West) and 1.8% (the West Midlands). The remaining seven regions all saw an increase in property asking prices although London saw one of the most muted rises at just 0.9%.

     
  2.  
    OECD WARNING 10:56:

    The OECD, which is a sort of economic think tank funded by the world's wealthy nations, has warned that the euro area is at risk of "prolonged stagnation", unless steps are taken to boost demand. The OECD has welcomed recent action by the European Central Bank but says other measures including quantitative easing are needed.

     
  3.  
    EUROZONE SURPLUS 10:42:
    Hamburg, Germany

    Some rare positive economic news for the eurozone. The region's trade surplus was 21.2bn euros (£16.9bn) in July. That's the second biggest monthly surplus ever according to Reuters. Strong exports to Britain, the United States and China were behind the healthy numbers.

     
  4.  
    INDIAN INFLATION 10:27:
    India market

    A boost for the newish Indian government of Narendra Modi. In August wholesale price inflation slowed to the lowest rate in almost five years. A drop in the price of fuel and metals helped depress the wholesale price index to an annual rate of 3.74%, from 5.19% in July. Persistent inflation has been a big problem for the economy.

     
  5.  
    VODAFONE RESPONSE 10:09:

    Vodafone says it's not to blame for the demise of Phones 4U. We "strongly reject any suggestion we behaved inappropriately" during negotiations with Phones 4U, it says. Phones 4U managers told Vodafone that they had little flexibility to negotiate due to the "debt repayment obligations".

     
  6.  
    HOUSE PRICES 09:55:
    A row of houses for sale in a London street

    The UK housing market has seen a pick up in activity earlier than usual after the traditional summer break, according to the property website Rightmove. It says asking prices jumped 0.9% between August and September to £264,875 on average in England and Wales. That's the first time property asking prices have risen in September in three years, usually they fall around 0.5% in the month.

     
  7.  
    SILCON VALLEY BACKLASH 09:34:
    Financial Times

    Senior figures in Silicon Valley are worried about a backlash against the tech industry, according to the lead article on the front page of today's Financial Times. It quotes the well known investor Peter Thiel who says Silicon Valley is "quite oblivious" over concerns about privacy and security, particularly in Europe.

     
  8.  
    GREGGS TRADING 09:20:
    A Greggs the baker shop front

    It's been a good couple of months for Greggs the baker with like-for-like sales up 4% in the first three months of its new financial year, suggesting its new focus on the lunchtime crowd and meal deals is paying off. Lower commodity prices have helped as well, it said in a trading update earlier this morning. Shares are 12.5% higher to 603.55p in early trading in London.

     
  9.  
    GAMBLING WATCHDOG 09:08: Radio 5 live
    Computer, Roulette wheel

    The betting industry is announcing the creation of an independent gambling watchdog and restrictions on advertising. The industry has been "listening to customers" says Carl Leaver, chief executive of Gala Coral on Radio 5 live. There was concern over children being exposed to advertising and sign-up offers, which offered free bets, he said.

     
  10.  
    FINANCIAL TIMES MAKEOVER 08:56: BBC Radio 4

    "There is still a lot of advertising money in the newspaper" says FT editor Lionel Barber of the City newspaper's makeover on the Today programme. The makeover of the newspaper is part of a new digital first strategy at the FT. The digital first strategy is "the same as many other newspapers are following," Mr Barber says.

     
  11.  
    MARKET UPDATE 08:49:

    European markets generally are lower this morning with investors looking ahead to a meeting of US Federal Reserve policymakers later this week.

     
  12.  
    Via Twitter Kamal Ahmed BBC Business editor

    tweets: "Rob Wood, chief UK economist, Berenberg: Yes vote "would make Brexit from EU more likely because Scotland is relatively pro-EU" #indyref"

     
  13.  
    HEINEKEN TAKEOVER BID 08:35:
    Heineken plant

    Heineken has opened 2.6% on the Dutch stock market this morning after its rejection of a takeover bid from rival brewer SABMiller. Shares in SABMiller have jumped 5% in London.

     
  14.  
    PHONES 4U 08:25:

    Shares in Dixons Carphone have risen more than 3% following the demise of rival Phones 4U. Vodafone is down 0.9%.

     
  15.  
    LUFTHANSA STRIKE 08:19:
    Lufthansa planes

    There will be no Lufthansa flights from Frankfurt on Tuesday as the airline's pilots are holding an eight hour strike. Pilots are wrangling with the airline over an early retirement scheme. A strike last week grounded flights at Munich airport.

     
  16.  
    PHONES 4U 08:11: Radio 5 live

    Network operators like EE and Vodafone are keen to grab the market of independent phone sellers like Phones 4U because other parts of the business are struggling, says Rahul Sharma a retail consultant and director of Neev Capital on Radio 5 live. For example, he mentions that the European Union has cracked down on roaming charges.

     
  17.  
    AIR FRANCE STRIKE 08:00:
    Air France

    Air France expects that more than half of its flights will be cancelled today due to a week-long strike by pilots. Advice for passengers can be found here. The protest, which started today, is over a shift of jobs and operations to a low cost carrier. Many of Air France's European services are transferring to Transavia.

     
  18.  
    HEADLINES
    • Vodafone rejects claim it undermined Phones 4U
    • Striking pilots ground half of Air France services
    • Heineken rejects takeover bid from SAB Miller
     
  19.  
    APPLE TV? 07:52: BBC Radio 4
    The new iPhone 6

    "TV is one of those things that if we're really honest is stuck back in the 70's," says Tim Cook, the boss of Apple in a US television interview. "The interface is terrible... Think about how much has changed," he said, fuelling speculation that Apple is planning a big push into the TV business.

     
  20.  
    DEVOLUTION 07:44: BBC Radio 4

    "What we are asking for is the full devolution £22.5bn worth of public expenditure in the Greater Manchester area," says Mr Blond. That equates to about 1,000 different funding lines from Whitehall. Manchester could, in time, even raise its own taxes. He claims adding the government already thinks this is "the only way to go".

     
  21.  
    DEVOLUTION 07:32: BBC Radio 4

    So if Scotland votes Yes to independence on Thursday, what next for the rest of the UK? More devolution says the think-tank ResPublica. "We're already on the road towards a federal state and we desperately need it," Philip Blond, director of the think-tank tells the Today programme, adding Manchester should go first. "Devolving powers would allow Manchester to become a net contributor to the economy rather than a burden to the State, he adds.

     
  22.  
    PHONES 4U 07:28:

    Phones 4U was bought by private equity group BC Partners in 2011. It is particularly upset with Vodafone. Stefano Quadrio Curzio, a representative of BC Partners, said: "Their behaviour appears to have been designed to inflict the maximum damage to their partner of 15 years, giving Phones 4U no time to develop commercial alternatives."

     
  23.  
    Via Twitter Adam Parsons Business Correspondent

    tweets: "Phones4U: "All mobile contracts bought through Phones 4u remain unaffected.. networks will continue to provide mobile services" @bbc5live"

     
  24.  
    Via Twitter Stephanie McGovern Breakfast business reporter

    tweets: "Phones 4U says orders not already dispatched will be cancelled + payments refunded. Call customer service to find out if dispatched or not."

     
  25.  
    SCOTTISH REFERENDUM 07:03: BBC Radio 4

    "The sort of business people I know, by and large, are not making a political statement but pointing out the outcomes of a Yes or No vote," says Patrick MacDonald the former boss of John Menzies on the Today programme. "They are just trying to be honest with their customers and staff," he adds. He won't be drawn on changes to his own business though. "There will be long period of negotiation [in the event of a Yes vote] and lots of lawyers involved.

     
  26.  
    FINANCIAL TIMES MAKEOVER 06:56:
    FT, WSJ

    The Financial Times has been through a makeover. The front page has a new layout, with a briefing section on the right hand side of the front page. There's also a new typeface, called Financier. The opinion of the BBC Business desk is that it looks a bit more like the Wall Street Journal - except it's still pink of course.

     
  27.  
    SCOTTISH REFERENDUM 06:46: BBC Radio 4

    The editor of the Financial Times, Lionel Barber, tells the Today programme that business leaders have been "saying privately" for months that shop prices will diverge and that there will be significant economic costs to independence. "We know [Cabinet Secretary] Jeremy Heywood has been on the phone to business leaders asking them to speak up about their concerns, "Mr Barber adds.

     
  28.  
    RUSSIA SANCTIONS 06:34:
    Russia flag

    "They'll definitely retaliate," says Nina Schick, analyst at Open Europe (a think tank which focuses on European Union reform). On Wake Up to Money she was asked whether Russia will hit back against last week's sanctions imposed by the EU. Exports of EU clothing and cars are likely targets she says. Russia may also close its airspace to western airlines. Putin is ready to put his people through economic pain Ms Schick says.

     
  29.  
    SCOTLAND PERSONAL FINANCE 06:28: Radio 5 live

    Wake Up to Money looks at what an independent Scotland would mean for personal finances. For example, you are only allowed to invest in an ISA if you live in the UK. The new Scottish government would perhaps set up its own tax free scheme, says Clare Francis, editor-in-chief at Moneysupermarket.com.

     
  30.  
    HEINEKEN TAKEOVER BID 06:13: Radio 5 live
    Heineken beer crates

    So what should we make of this takeover bid from Heineken from SAB Miller? SAB Miller has been considered a takeover target itself, so it could be bolstering its place in the market, says Euan Stirling on Wake Up to Money. There is a strong business logic for brewers to get bigger. They have expensive distribution networks, so plugging in new products is "pretty fantastic" he adds.

     
  31.  
    PHONES 4U 06:05: Radio 5 live

    Network operators like Vodafone and EE consider independent phone sellers like Phones 4U as a "necessary evil" says Euan Stirling from Standard Life Investments on Wake Up to Money. But Phones 4U did not have the clout to be necessary he argues. Its collapse leaves Carphone Warehouse (recently merged with Dixons) in a stronger position, says Mr Stirling.

     
  32.  
    PHONES 4U 06:00: Radio 5 live
    Phones 4U logo

    So why is Phones 4U facing administration? Well it was "heavily indebted" says Euan Stirling from Standard Life Investments on Wake Up to Money. And when the network operators withdrew their support, the company had nothing to sell, he said.

     
  33.  
    06:00: Ben Morris Business Reporter

    Welcome to the week. If you want to get in touch, email us at bizlive@bbc.co.uk or tweet @bbcbusiness.

     
  34.  
    06:00: Matthew West Business reporter

    Morning, we've seen mobile phone retailer Phones 4U announce overnight that it is going into administration and Dutch brewer Heineken has rejected a takeover offer from rival SABMiller. There's more house price data coming up and we'll get the latest health check (of sorts) on Britain's high street shops a little later. Stay with us.

     

Features

From BBC Capital

Programmes

  • Click reporter Jen Copestake looks at a smart mirrorClick Watch

    From the mirror offering beauty advice to next gen robot vacuums - the connected home of the future

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.