Co-op Bank 'needs a further £400m'
7:43am Monday 24th March 2014 in © Press Association 2014
The Co-op's banking arm revealed a setback to its recovery today after admitting it needs to raise another £400 million to cover past issues.
The business, which is set to report full-year losses of up to £1.3 billion for 2013, said the matters relate to conduct and legal documentation, such as legacy PPI business and technical breaches of the Consumer Credit Act.
The Co-op Bank is now under the control of bondholders as part of last year's refinancing to fill a £1.5 billion hole in its balance sheet.
Today's update means the starting capital position of the bank for its four- to five-year recovery is weaker than in the rescue plan announced last year, requiring shareholders to inject another £400 million into the business.
Chief executive Niall Booker said: "The proposed capital raise would enable us to reset this starting point and continue with the execution of our original business plan."
The bank said continuing "root and branch" reviews of processes, procedures and documentation had produced further conduct and legal issues.
In addition, one-off costs associated with the separation of the bank from the Co-operative Group have proved more costly, time-consuming and more complex than anticipated.
Its capital ratio - a measure of its financial strength - is now expected to be around 7.2%, compared with previous guidance of near 9% and against the regulatory minimum requirement of 7%. The bank's results for 2013 are expected to be announced on or before April 8.
The bank said it was focused on improving its capital position and on community banking through retail and small business (SME) customers.
Mr Booker added: "The new executive team brought in just nine months ago is continuing to review aspects of the Co-operative Bank's legacy operations, assets and liabilities.
"As a result of this continuing review, we are unearthing a range of issues which the new executive team is having to address."
The risks were identified at the time of the rescue process last year but the Co-op said it was now quantifying the financial impact of some of those risks.
Mr Booker said there were some early indications of progress in its turnaround plan.
He added: "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. However, there remain significant challenges ahead."
Staff numbers have been reduced by 1,000 in the last year, equivalent to 14% of its workforce, as part of a planned 15% cut in its branch estate.
The bank is now 30% owned by the Co-operative Group, with the remainder held by other investors of which no group holds more than a 9.9% stake.
Group chief executive Euan Sutherland quit earlier this month, claiming the Co-op was ''ungovernable'' after board members frustrated his efforts for reform.
The group is facing a series of investigations into what went wrong, including questions over the appointment of disgraced bank chairman Paul Flowers despite a lack of knowledge of the sector. He was later exposed in a newspaper drugs sting.
The Co-op is set to announce losses of £2 billion on April 17.