Co-op Bank apologises and confirms £1.3bn losses

A view of a Co-operative Bank branch

Related Stories

The Co-operative Bank has confirmed it made a loss of £1.3bn for 2013.

The losses, in line with expectations, come after the bank's failed bid to buy 632 branches from Lloyds Bank last year.

The deal collapsed after the discovery of a £1.5bn black hole in the Co-op Bank's balance sheet.

Parent company the Co-operative Group lost control of the bank to a group of US hedge funds that launched a rescue deal in December.

The bank said it did not expect to make a profit in 2014 or 2015.

It also apologised to its 4.7 million customers.

Co-op Bank chief executive Niall Booker said: "We appreciate that customers and other stakeholders continue to feel angry about how past failings placed the future of the business so seriously at risk.

"I would like to apologise to them, to thank them for their continued loyalty and to thank colleagues for their commitment during such difficult times."

The bank said it would not pay out £5m to former executives who left the bank after its near collapse last year.

But Mr Booker will receive a £2.9m pay package, which includes a basic salary of £1.2m and up to £1.7m in performance related bonuses.

Mr Booker could also receive a potential £1.2m as part of a three year incentive plan based on the future performance of the business.

It said up to 40 of its high street branches will close this year, which is likely have an impact on jobs, although the bank has yet to put a figure on the number of posts under threat.

The results were published after two earlier delays.

Analysis

Beneath the news of the losses that were widely expected, those interested in the future of the Co-op Bank will focus on two things.

How is the bank progressing on its plans to raise a further £400m and is there any evidence of a decline in customer numbers?

On the first, I am told negotiations are going well.

As yet, the Co-op Group - which owns 30% of the bank - has not agreed to inject more money and there will be a lot of interest in what it says about the issue when it publishes its own annual results next week.

On the second there is mixed evidence.

The number of current account holders is up slightly while business customers - far more affected by the ratings downgrades suffered by the Co-op - has declined.

In March, Co-op Bank was forced to admit it had found another £400m black hole in its finances, forcing it to issue new shares in an attempt to raise the funds from investors.

The shortfall became apparent after the discovery of additional costs related to past misconduct and poor documentation.

The biggest part of the additional costs relate to payment protection insurance (PPI) mis-selling and lapses in the provision of mortgages.

The bank said it would pay £114m to compensate customers who had been overcharged on mortgage repayments,

It has also set aside £110m to cover breaches of the Consumer Credit Act and £103m to compensate customers mis-sold payment protection insurance (PPI).

Small businesses that were mis-sold complex interest rate hedging products will collectively receive £33m in compensation.

The Co-op Bank's additional rights issue has also triggered speculation that the Co-op Group's remaining 30% stake could be diluted, because it would struggle to find additional funds to maintain its shareholding.

Rescue

In December, the bank was the subject of a dramatic £1.5bn rescue deal in which its parent company, the Co-operative Group, lost control of the bank to a group of US hedge funds,

They took a 70% stake in the bank.

Chris Wheeler, a banking analyst at Mediobanca, told BBC the bank was in a "parlous position".

He said: "It needs £400m more capital, [it is] claiming it's going to be a rights issue, The Co-op Group has to put in £120m.

"So, big capital gap to be filled, and if the Co-op is no longer a major shareholder, one asks the question as to really what is the future style of the bank, because it may no longer be part of the Co-op Group per se."

He also questioned whether members of the Co-op Group would want to put more money into the bank, suggesting the group might chose to protect its other businesses, which include the supermarket chain Somerfield and the Co-operative funeral home business.

Lord McFall, a Labour Co-operative peer, told the BBC he thought the Co-op Group should still invest in the beleaguered bank.

"If you break it you own it," he said, blaming bad management and a lack of leadership at the top of the group for the bank's misfortunes.

"Not only did they sell the crown jewels, but they vandalised them," he added.

Mr Booker said he was confident the bank would raise the additional £400m it needed even if the Co-op Group chose not to put in any further cash.

"Shareholders are very, very supportive and I really, really think that we're going to get this through the gate," he added.

Will I be affected?

  • Despite the figures outlined by the Co-op Bank, customers' money in any troubled bank is generally well protected
  • Savers in the UK are protected by a deposit guarantee scheme, which safeguards the first £85,000 of money with any one bank or building society were it to go bust
  • Mortgage customers will continue to make their monthly repayments as normal
  • In an extreme case, such as was seen for some Northern Rock customers, a bank's mortgage book could be sold on so the repayment is made to a new provider
  • The Co-op will try to stay competitive on savings and mortgage rates, so it can attract new business and retain its current customers
  • Last June, 7,000 private individuals who held bonds with the Britannia Building Society, which was taken over by the Co-op Bank, were told they were facing losses owing to restructuring

The Co-op Group itself has been forced to delay the publication of its annual results, after the departure last month of its chief executive, Euan Sutherland.

The group's losses are expected to be about £2bn.

Mr Sutherland left after it was revealed that in a Facebook post he had described the group as "ungovernable".

Earlier in March, details of his basic salary of £1.5m, including a retention bonus of another £1.5m, were leaked to the press.

On Wednesday, it emerged that former Labour City minister Lord Myners, who had been drafted in by the Co-op Group in December to lead a review of the business, had resigned his position on the board of directors.

Lord Myners was appointed as an independent director by Co-op Group chair Ursula Lidbetter in December to undertake a full review of the entire business.

'Breathtakingly destructive'

His initial findings showed the group's elected directors had overseen "breathtakingly value-destructive" decisions, among which were the Co-op's takeovers of Britannia building society and supermarket chain Somerfield.

He also found its three-tier system of elected member representation - made up of area committees, regional boards and the group board - had "consistently produced governors without the necessary qualifications and experience to provide effective board leadership".

Too many directors, he said, did not have any serious business experience and were therefore not qualified to keep senior managers in check.

Instead, he recommended new group board directors should be appointed according to clear criteria of skills and experience.

But some of the Co-op's most influential members are worried that the changes could damage the group's values.

More on This Story

Related Stories

More Business stories

RSS

BBC Business Live

  1.  
    SAT NAV 11:10:
    Galileo

    With the planned launch of two satellites aboard a Soyuz rocket from French Guiana later this month, Europe is pushing ahead with its own satellite navigation system, known as Galileo. How will it change our lives? A fascinating insight here from BBC reporters Tim Bowler and Matthew Wall.

     
  2.  
    Via Email Ilya Spivak Currency Strategist at DailyFX

    "A lull in fundamental event risk in Asia and Europe has left currency markets rudderless, with investors looking ahead to the Kansas City Federal Reserve Economic Symposium. A gathering of so many policy heavy-hitters in one place all but guarantees that someone will invariably say something market-moving at some point before the affair is through. Needless to say, traders will be all ears."

     
  3.  
    HOUSE PRICES 10:41:
    Houses

    Asking prices for homes across Wales and parts of the North of England are still significantly lower than before the financial crisis, according to property website Rightmove. Prices in County Durham are still more than 13% below levels seen at the pre-crisis peak of May 2008. No prizes for guessing that the biggest price increase in the period was seen in central London - a rise of 41.9%

     
  4.  
    SCOTTISH VOTE 10:29:
    Douglas Flint

    A vote in favour of Scottish independence could lead to "capital flight" from the country, HSBC chairman Douglas Flint has told the Daily Telegraph. He said this could leave Scotland's financial system in a "parlous state". Writing in the paper, Mr Flint says the sterling currency union has been an "anchor of financial stability" for Scotland.

     
  5.  
    AGA RESULTS 10:16:
    aga

    Aga, the oven maker, has said revenues for the first half of the year were up 3.3% to £123.5m. Operating profits were up 60% to £2.4m. "Our markets have picked up but remain inconsistent and variable. Uncertainties around mortgage availability and interest rates are a contributing factor," it said.

     
  6.  
    MARKET UPDATE 10:03:

    Shares in Vodafone have risen 0.8% this morning following a report that it could be a bid target for US telecoms firm AT&T. AstraZeneca shares are up a further 0.7% so far today. Shares in Astra jumped 3% yesterday on speculation that US rival Pfizer could be preparing another bid for the pharmaceutical firm, following its failed takeover attempt earlier this year.

     
  7.  
    ADVERTISING 09:49: BBC Radio 4

    Kate Robertson, co-global president and UK chairman of Havas Worldwide - one of the world's largest marketing communications agencies, was the Friday boss on the Today programme. She says her industry is a barometer of economic conditions - in 2009 its UK business saw revenues drop 9% from the year before, but this year UK revenues are up about 12% so far.

     
  8.  
    YELLEN SPEECH 09:34: BBC Radio 4
    Janet Yellen

    All eyes will be on US Federal Reserve chair Janet Yellen later when she addresses a gathering of central bankers and other policymakers at Jackson Hole, Wyoming. Analysts will be studying the speech for clues as to when the US might raise rates. James Bevan at CCLA Investment Management tells Today that she wants to see wage inflation picking up before taking action.

     
  9.  
    LONDON STOCK EXCHANGE 09:19:

    In addition to setting out plans for a rights issue, the London Stock Exchange has also announced a big rise in quarterly profits following a "resurgence in the IPO market". The surge in the number of firms floating shares on the market helped to push pre-tax profits for the three months to June to £83.6m, up 40% from a year earlier.

     
  10.  
    AIRPORT SURVEY 09:05: BBC Breakfast
    BBC Breakfast

    Some of Britain's biggest and busiest airports have been named as the worst for customer satisfaction by the consumer group Which?. Smaller airports did much better, including Doncaster Sheffield airport, where Dominic Laurie is for BBC Breakfast. Aviation analyst Laurie Price says smaller airports have a great opportunity but are hard pressed to compete with bigger airports which have the greater volume of flights.

     
  11.  
    MARKET UPDATE 08:50:

    European stocks are largely up before a key speech from US Federal Reserve chief Janet Yellen. She is due to speak at a gathering of central bankers in Jackson Hole, Wyoming, as investors continue to speculate on the direction of US interest rates.

    • London's benchmark FTSE 100 index rose 0.04% to 6,780.08 points
    • Frankfurt's Dax gained 0.12% to 9,390.29
    • The CAC 40 index in Paris fell 0.04% to 4,291.06
     
  12.  
    EDF ENERGY 08:36:
    Gas rings

    "We recognise that for a period of time the service to our customers was not up to the standards they deserve," says Beatrice Bigois from EDF Energy following this morning's announcement from Ofgem that it will pay out £3m. "We apologise to those customers who were impacted during this period. We have co-operated fully with Ofgem and have taken this matter very seriously."

     
  13.  
    MARKET UPDATE 08:17:

    After nine consecutive days of gains, Japan's Nikkei share index has closed lower. The benchmark index ended the day down 47.01 points at 15,539.19. In Hong Kong, the Hang Seng is up 104.96 points at 25,099.06.

     
  14.  
    CO-OP BANK RESULTS 08:08: Radio 5 live

    Chris Wheeler, a banking analyst at Mediobanca, is on 5 live talking about the Co-op Bank results. He says "there are signs of progress" but still "problems they have to deal with," including a drop in deposits. A reduction in money set aside for bad debts "flattered" the profit figures, he said.

     
  15.  
    BANK OF AMERICA 08:01: Radio 5 live

    Bank of America can easily afford the record $16.7bn (£10bn) settlement with US authorities for misleading investors about the quality of loans it sold, US investment expert George Conboy tells Radio 5 live. He says the bank is likely to make $10-15bn over the next 12 months.

     
  16.  
    CO-OP BANK RESULTS 07:54:

    An offer of shares to the public via a stock market listing is "logistically unlikely" before the end of 2014, the Co-op Bank says. It is setting up a committee to work out when it will do that. The Prudential Regulation Authority "has indicated it would be concerned if an IPO were to distract focus from the primary goal of delivering the Bank's Turnaround Plan," it said.

     
  17.  
    ARGENTINA DEBT 07:46: BBC Radio 4

    Argentina risks becoming an "international financial pariah" again over its latest debt row, James Bevan, chief investment officer at CCLA Investment Management tells the Today programme. "The problem is that investors won't trust them, [so] they won't provide money," he says.

     
  18.  
     
  19.  
    LSE RIGHTS ISSUE 07:35:
    LSE sign

    The London Stock Exchange has said it plans to raise £938m through a rights issue. The money is to be used to part-fund the acquisition of Frank Russell Company. The LSE announced in June it was buying the US asset manager for $2.7bn (£1.6bn).

     
  20.  
    PPI SPENDING 07:25: Radio 5 live

    Consumers have about £23bn of payment protection insurance redress from banks, says James Bevan, Chief Investment Officer at CCLA Investment Management on Wake Up to Money. When that dries up, it may have an effect on spending, he says.

     
  21.  
    EDF ENERGY PENALTY 07:15:

    Ofgem said it found that between May 2011 and January 2012, "EDF Energy did not have appropriate procedures in place to properly receive, record and process all customers' complaints in accordance with complaints handling rules". However, it adds EDF took action quickly to rectify the problems. It also says EDF "has acknowledged that their customers were caused significant disruption" and has apologised.

     
  22.  
    CO-OP BANK RESULTS 07:09:
    bank

    Co-operative Bank has reported a loss of £75.8m for the six months to the end of June. That compares with a loss of £845m the year earlier. The bank says it has cut staff numbers by 21% from a year earlier to 5,860.

     
  23.  
    EDF ENERGY PENALTY Breaking News
    EDF bill

    EDF Energy is to pay £3m after an investigation by energy regulator Ofgem found that the company breached complaint-handling rules. The company will pay the money "to benefit vulnerable customers", Ofgem says.

     
  24.  
    BANK OF AMERICA 06:55: BBC Radio 4

    Chris Wheeler, an analyst at Mediobanca, has been discussing Bank of America's massive $16.7bn settlement with US authorities. He told the Today programme that while banks were at fault, investors were also "in a hurry" at the time, and failed to carry out proper credit analysis of what they were buying.

     
  25.  
    EUROZONE 06:44: Radio 5 live
    ECB headquarters

    James Bevan is chief investment officer at CCLA Investment Management and he's on Wake Up to Money talking about the eurozone's performance. "Interest rates are so low" in some of the countries that when you factor in the risk of investing the rates are negative, he says. Sustainable growth in the UK hasn't yet been seen either, he says. with house price growth and PPI repayments from banks driving consumer spending.

     
  26.  
    GAP IN INDIA 06:30:
    Gap logo

    US clothing store Gap is bringing its brand to India, aiming to open 40 outlets. It will launch its first two stores there early next year in Mumbai and the capital Delhi - India's biggest and busiest cities.

     
  27.  
    BANK OF AMERICA 06:20: Radio 5 live
    Bank of America

    Chris Orndorff, a fund manager at Western Asset Management is on Wake Up to Money talking about Bank of America's record $16.7bn settlement. The penalty dates back to the behaviour of a company it purchased, Countrywide. "The timing of the Countrywide purchase has to be one of the worst in history," he says. The fine wipes out the cumulative net income of the bank for the last three years. The bank is very safe though, he says.

     
  28.  
    ARGENTINA DEBT 06:06:

    Argentina's plan to exit its debt default by asking investors holding defaulted bonds to swap them for new locally issued debt has been ruled "illegal" by a US court. New York Judge Thomas Griesa said the plan was "lawless". Argentina was trying to get around an earlier court ruling banning it from paying interest to investors who had accepted restructured bonds.

     
  29.  
    OIL PRICE 06:00: Radio 5 live
    Oil barrels

    After rising sharply in June, oil prices have now slipped back to 14-month lows. Amrita Sen from Energy Aspects tells Wake Up to Money. She says that "the initial price rise was on the back of the fears should any disruptions come at peak demand". However, despite geopolitical risks, supply has remained undisrupted while demand has fallen.

     
  30.  
    06:00: Nick Edser, Business reporter

    Good morning. Get in touch with us via email: bizlivepage@bbc.co.uk or on twitter @BBCBusiness.

     
  31.  
    06:00: Howard Mustoe, Business Reporter

    Hello! We'll be bringing you all the latest business news, data and analysis. Stay with us.

     

Features

From BBC Capital

Programmes

  • A bird of prey in a Tokyo animal cafeThe Travel Show Watch

    From cats to rabbits and birds of prey – Tokyo’s flourishing animal cafe scene

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.