Co-op Bank plunges to a loss of £1.3bn

THE troubled Co-operative Bank confirmed yesterday that it had racked up £1.3bn of red ink and said its survival depends on raising £400m of new capital.

Boss Niall Booker said he was confident the lender could raise the money without the help of its parent group, which is itself burdened with huge debt.

Booker, recruited to revive the bank’s fortunes, reported numbers littered with evidence of its past errors. It set aside £412m to cover the cost of scandals including PPI mis-selling and overcharging on mortgages, and took £516m of impairments on bad loans in its ‘non-core’ loan book.

The resulting £1.3bn loss means the bank’s capital ratio – an indicator of how prepared it is for major financial shocks – fell to 7.2pc, just above the minimum 7pc requirement.

It also means the bank will not make a profit this year or next.

The Co-op’s woes began when it discovered a £1.5bn black hole in its accounts, forcing it to launch a capital-raising exercise that gave control of the company to US hedge funds.

But the bank still needs an extra £400m. The group still owes £263m from the bank’s last rights issue, four-fifths of the £333m it commit- ted to contribute. Its stake was reduced to 30pc by the cash call and would fall to around 20pc if it does not take part in the next rights issue.

Booker said one option for the group would be to limit the dilution of its holding via so- called ‘tail swallowing’. This is where an investor sells some of their rights to participate in a share offer and ploughs the proceeds back into new shares without having to fork out any new money.

The bank’s annual r eport revealed Booker will be paid £4.6m for 18 months’ work. It also disclosed that £5m of bonuses will be withheld from top earning staff.

Booker said some 40 branches would close this year.