Co-op Bank posts better-than-expected first-half loss
(25 August 2015 – United Kingdom) The Co-operative Bank revealed a first-half loss of £204 million (A$440 million) as chief executive Niall Booker warned there would be at least two more years before it returns to profit.
“We won’t be profitable in 2015 [though] these results are slightly better than we expected.
“We won’t be profitable in 2016 either,” Booker said.
The bank’s pre-tax loss for the six months to the end of June widened from £77 million a year earlier as revenue fell, charges for bad behaviour rose and it spent more money to make up for lack of investment in its systems.
If Booker is right, that means the bank will have posted a loss for four consecutive years after it was left burdened by bad debts from the failed merger with Britannia Building Society.
Operating income in the first half fell to £236 million from £307 million after it sold assets and suffered losses on some of the disposals.
The Co-op Bank It set aside an extra £10 million to compensate customers mis-sold loans and packaged accounts, taking the charge to £49 million.
Spending on projects to improve systems and processes increased to £102 million from £69 million while gains on loans that performed better than expected fell by £42 million.
Booker said losses this year and next year will be caused by a similar mix of charges and costs, mainly made up of the £450 million allocated to overhaul inadequate systems and processes and to catch up with the industry-wide move into digital services, such as banking via smartphones and tablets.
He said his plan to rebuild the bank was on course and its core business was performing better, while customer departures had slowed after mass defections last year.
The bank lost a net 2250 current accounts in the first half of 2015 compared with 62,646 a year earlier.
Booker said minimising overdraft charges had helped retain customers.
As part of Booker’s cost-cutting plan, the bank has closed more than a quarter of its branches in the past year.
Branch numbers have fallen to 165 from 227 a year ago, Booker said.
Closures are expected to slow from now on but that more branches would go as customers conducted more of their business on computers and phones.
“We took a fairly big whack at the branches early on. It’s consistent with what you’re seeing elsewhere in the market and it will drive fewer branches and continued investment in digital channels,” Booker said.
The expected losses for this year and next year meant the bank was unlikely to launch a mooted initial public offering in the near future, he said.
“It will be a wee bit of time before we are ready to IPO,” he said.