Co-op boss asks ‘What went wrong?’ as profits plummet

Co-operative Group lost £559m in the first half of the year, having written off £496m of bad loans at Co-op Bank.

The bad loans are mainly from Britannia Building Society, which merged with Co-op Bank in 2009.

Including the write-downs, Co-op Bank alone reported a total loss of £709m while the group’s food and other businesses reported profits.

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Richard Pym, chairman of Co-operative Bank, said given the terrible set of results for the start of 2012 the question of “what went wrong?” was very relevant.

He told policyholders that Sir Christopher Kelly had been asked to undertake a comprehensive independent review into the events that led to the bank announcing a £1.5bn capital shortfall, which regulators insist must be plugged.

The findings of Sir Christopher Kelly’s review will be reported by May next year.

The aim of that review is to independently establish the facts, and speculation is a diversion from finding out the truth, and repairing the bank’s financial position and reputation.

Mr Pym said: “The critical first step in our recovery is completing the exchange offer, as part of the recapitalisation plan announced on 17 June.

“The completion of the exchange offer, in which both The Co-operative Group and holders of the Bank’s subordinated capital securities will contribute broadly equal amounts, will generate £1bn of the total additional £1.5bn core capital required to secure the bank’s future.

“In addition, in 2014, contingent on a successful exchange offer, The Co-operative Group will contribute up to a further £0.5bn expected to be funded primarily through the sale of its insurance businesses.

“The execution of the exchange offer is vital to stabilising the bank’s capital position; indeed, we will not remain a going concern without it. We expect to announce further details of the exchange offer in the fourth quarter.

“The UK retail banking market continues to suffer from a lack of choice and, we believe, The Co-operative Bank has an important role in providing a viable alternative to the traditional banks.

“We are planning to rebuild the bank into what it always should have been, and indeed, what it used to be. The support we have received from customers and colleagues is hugely appreciated and demonstrates why this project to rebuild the Co-operative Bank is so worthwhile.”

The results revealed the bank continued to lend through this tricky time.

About 45 per cent of the £1.6bn of new lending in the first half of 2013 related to house purchases, of which 42 per cent was provided to first time buyers.

In addition, Co-op lent £500m to businesses, down from £700m in the corresponding period last year.