The Co-op Bank has reported a pre-tax loss for 2013 of £1.3bn ($2.18bn) after the most turbulent year in the bank’s history.
According to the bank’s CEO Niall Booker the total losses, in line with analyst expectations, "reflect the magnitude of the issues that have come to light" since Booker joined The Co-operative Bank ten months ago.
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The results were announced later than the bank had planned due to the departure of it’s previous group CEO Euan Sutherland who had been heavily criticised for attempting to run the mutual like a PLC. Before resigning Sutherland labelled the company as "ungovernable".
The Co-op group’s total losses are expected to be around £2bn; its supermarket unit, the country’s fifth-largest food retailer, is widely acknowledged to have overpaid for the acquisition of the Somerfield retail business, leading to calls for the group to be broken up and run as separate business.
The Co-op’s bank’s challenging year is reflected in a number of key banking metrics:
- Total assets at the bank fell to £43.4bn from £49.7bn in 2012, a reduction of 6,376.7)
- Net interest margin at the bank fell 2 basis points to 1.09%, from 1.11 in 2012;
- Cost income ratio rose from 73.7% in 2012 to 93.6% in 2013 reflecting lower income from balance sheet contraction and significant one-off costs;
- Customers deposits fell to £33bn from £36.8bn in 2012.
The mutual’s troubles began in March 2013 after the discovery of a £1.5bn black hole in the Co-op Bank’s balance sheet.
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By GlobalDataThe EU enforced deal for Lloyds Banking Group to offload 632 branches to the bank, known as Project Verde, subsequently fell through, resulting in Lloyds splitting its Lloyds TSB brand.
In December of 2013 The Co-op Group lost control of the bank to US hedge funds, who now control 70%, to raise the required capital to keep the bank afloat.
The reputation of the bank was further damaged due by allegations of incompetence and drug use by its former chairman, the Reverend Paul Flowers, who resigned in June 2013.
The relative loses for the bank per customer equals £276 compared to the 81% UK government owned RBS 2013 loss of 8.2bn, corresponding to £341 per customer.
The bank said it did not expect to make a profit in 2014 or 2015 and it also apologised to its 4.7m customers.
The Co-op Bank has long been noted for its archaic IT systems, which were further complicated when it acquired Britannia Building Society in 2009.
Its plans to build a unified IT platform for both the bank and Britannia contributed to the losses, and was abandoned.
The fall-back of using Lloyds Bank’s IT by acquiring a chunk of its network also fell through.
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."
Booker is in line to receive at least £4.6m for his first 18 months in the job – almost equal to the amount the stricken lender has withheld from former executives.
The Co-op’s branch network reduced by 15% in 2013 (51 branches) and the bank plans to cut a further 15% in 2014.
Despite the bank’s negative press and worrying financial statements, it managed to grow its customer base by 0.2% and is still highly rated in terms of customer service.
Rare highlights for the bank were:
- Core retail net interest income up 7% to £428.1m;
- Core retail deposit balances broadly unchanged at £27.9bn from £28.1bn in 2012 (a decline of less than 1%);
- Core business net interest margin was stable at 1.7% (2012: 1.7%), reflecting improvements in core retail interest income offset by lower Treasury yields;
- The number of primary current accounts rose slightly from 663,504 in 2012 to 664,775 at year end 2013 (+0.2%).
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