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Co-op Bank facing further £400m black hole

The troubled bank’s update comes ahead of the publication of full accounts next month, which is expected to reveal losses of £1.2bn to £1.3bn for 2013.

According to the report, the bank needs to raise an extra £400m to restore its core tier-one capital ratio closer to 9 per cent.

A liability exercise discovered “conduct and legal documentation issues that included legacy payment protection insurance liabilities and technical breaches of the Consumer Credit Act.”

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These costs also include a £40m one-off cost associated with the separation of the Co-op Bank and Co-operative Group that brought the bank’s core tier-one ratio down to 7.2 per cent for 2013.

The bank is using UBS Investment Bank to help with the planned capital raising. The regulatory minimum core tier-one capital requirement is 7 per cent.

Co-op Bank chief executive Niall Booker said the cash injection, in addition to a £263m contribution from the Co-op Group later this year, would enable the bank to “continue with the execution of our business 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 retail and small business customers.”

Independent review

The latest bad news to envelop the bank follows the publication of a progress update by Lord Myners’ independent governance review into the Co-operative Group, published earlier this month.

The 10-page report warned the Co-op Group would go bust unless it urgently reformed its board and voting structure. This followed the resignation of group chief executive Euan Sutherland, citing difficulties with an “ungovernable” board.

Analyst View

Garry White, chief investment commentator at Edinburgh-based Charles Stanley Direct, said: “I think we’ll see an eventual split between the bank and the Co-op Group, otherwise it’s in danger of dragging the whole organisation down. These problems keep arising and they will take a long time to unpick.”