Co-op Bank eyes profit through the pain
Group reports positive results but has to stomach departure of 6,000 customers in first quarter
THE rehabilitation of the Co-operative Bank “remains challenging”, despite progress on the restructuring and a return to profit for the core business, the bank has said.
The group, which was bailed out by its lenders three years ago, reported a return to quarterly operating profit in its “core bank”, which excludes assets earmarked for sale or closure, such as the property loans that were once part of Britannia.
The sale of non-core assets took a pause in the first quarter, as the choppy economic conditions warded off potential bidders. However, the group has managed to reduce its risk-weighted assets from £7.4bn to £7bn so far this year.
Despite recent efforts to burnish the Co-operative brand, the bank lost a net 6,000 customers during the quarter, taking its total number of accounts to 1,425,000. The group launched a new online banking site this month and has begun offering monthly rewards for active customers.
Customers began deserting the Co-op Bank after a torrid 2013, when it revealed a £1.5bn hole in its finances. After the bank was taken over by its hedge fund lenders, the Co-operative Group was left owning just 20pc of the firm.
“There is still considerable work ahead. The impact of CRD IV [capital rules] as well as the sheer breadth and complexity of the remediation programme continue to create additional cost pressure and the overall execution of the turnaround plan remains challenging,” said chief executive Niall Booker.
“However, notwithstanding these issues, the achievements outlined above provide confidence that we are gradually developing a more resilient and sustainable bank.”
Operating costs are 10pc lower than a year ago, aided by the continued closure of bank branches that will lead to 54 closures in the first half of 2016.
Redress payments have also tapered off, with the volume of future PPI claims resting on whether the Financial Conduct Authority imposes deadlines for new claimants, the bank said.
Meanwhile, Co-op Bank’s mammoth transfer of data to a new IBM platform is going to plan, although “there remains a risk of a cost over-run”.
The update comes a month after the bank posted annual losses of £611m and predicted that it will remain loss-making for two more years. Losses in the core bank narrowed from £78.6m to £14.9m.
Co-op Bank has been given leeway by the Bank of England to defer its return to agreed capital requirements.
Unlike the Co-op Bank, the merchant bank Close Brothers has reported an upbeat start to the year, with lending up 8.2pc to £6.2bn and a 2pc rise in its wealth management assets to £9.3bn.
Even Close Brothers’ securities trading arm Winterflood enjoyed an improvement, with a growing profitability across all of its trading books after several years of depressed dealing volumes.
Shares rose 5.5pc to £12.92.