The Co-operative Bank has admitted that its financial performance continues to be impacted by legacy issues, reflected in a first half statutory loss before tax of £204.2m, £127.2m higher than during the six months of last year.
The bank’s interim results, published today (20 August), explained that the primary drivers for this were net losses on asset sales of £38.2m as a result of the de-leveraging of non-core assets to improve stressed capital resilience, coupled with increased project costs of £33.1m to £101.9m, as it takes steps to address historic under-investment in systems and processes.
Of course, the Co-op also had to deal with £49m of conduct and legal risk charges, including increases to existing provisions for packaged accounts and mortgages.
Earlier this month, the bank escaped a £120m fine from the Prudential Regulation Authority for “serious and wide-ranging failings” in its control and risk management framework, as a financial penalty was deemed not to advance the safety and soundness of the firm.
Last year the bank was found to be lacking in a Bank of England financial stress test and the Treasury Select Committee’s Project Verde report revealed serious inadequacies in its governance structure up to the middle of 2013, in response to an abortive attempt to buy 632 branches from Lloyds Banking Group.
The statement did note that no new significant categories of conduct issues were identified in the period and that its Financial Services Compensation Scheme levy charges were reduced to £20.5m over the last six months, compared with £25.3m during the same period last year.
The unwind of the fair value adjustments associated with the merger of The Co-operative Bank and Britannia Building Society continues to impact the income statement, with a charge of £54.3m - up from £41.2m during the comparative period.
Operating expenditure of £259.6m was actually down on the first half of 2014 - £297m - which reflects progress made in the cost reduction programme, focused on the simplification of processes, third party savings and branch rationalisation.
Niall Booker, chief executive, said that during the first half the Co-op has made “real progress” delivering the turnaround plan, focusing on reducing risk weighted assets to increase the ability to withstand economic stress, on making the IT platform more robust and reshaping the bank around our individual and small business customers.
“Of course, we have always said that addressing legacy issues will continue to dominate financial performance for some time and there is considerable work ahead towards a full recovery.”
He added that the bank needs to continue to make products simple, reinforce risk management and systems, strengthening culture and maintain high levels of service. “
The transformation of the bank remains challenging, however, this should not diminish the progress made against our strategic plan.”
peter.walker@ft.com
