Co-op Group reports £559m loss and recovery plans
A capital shortfall of £1.5bn had already been announced in June along with recapitalisation plans to repair the hole in its balance sheet, which have been approved by the Prudential Regulation Authority.
Niall Booker, who joined the bank as chief executive on 10 June this year, said: “We recognise the disappointment all stakeholders must feel about the financial performance we are reporting for the half year to 30 June 2013. This in turn reflects the deep rooted problems that the Bank faces.”
The recapitalisation plan involves the completion the of an exchange offer whereby both the group and holders of the bank’s subordinated capital securities will contribute broadly equal amounts which will generate £1bn of the total additional £1.5bn core capital required to secure the bank’s future.
And in 2014 if the exchange offer is successful the group will contribute up to a further £0.5bn expected to be funded primarily through the sale of its insurance businesses.
Despite its difficulties the bank has continued to lend throughout the first half of the year. Of the £1.6bn of new lending in half one 45% related to house purchases, 42% of which went to first-time buyers.
On its commercial side, the bank lent £500m to businesses which was a fall from £700m in the corresponding period last year which Booker said reflected the bank’s changed business focus and its decision to stop lending to new larger corporate customers.
Richard Pym, chairman of the bank, said the blame game must be held off until the facts behind the bank’s financial are established by an independent review which is set to be completed in May 2014.
He said: “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.”
In response to the stock exchange announcement a Bank of England spokesperson said: “The Prudential Regulation Authority anticipated the likely scale and source of these losses when it made its assessment of the bank’s capital position in June.
“Consequently the announcement today does not affect the PRA’s assessment that the Co-operative Bank has a capital shortfall of £1.5bn relative to 7% core equity capital after adjustments.”
The PRA will continue to monitor the actions taken by the Co-operative Bank as part of its plan to meet that capital shortfall and if it falls short of what is required the PRA will ask for additional action.