The Co-operative Group has reported heavy losses as a result of a huge write-down of assets at its troubled banking arm.
The group lost £559m in the first half of the year, having written off £496m of bad loans at Co-op Bank. The bad loans relate mostly to Britannia Building Society, which merged with Co-op Bank in 2009. The bank also faces a £1.5bn capital hole in its balance sheet, which regulators say it must fill. Including the write-downs, Co-op Bank alone reported a total loss of £709m. The Co-op Group’s food and other businesses reported profits.
The bad results were widely expected, but highlight the problems being faced by Co-op Group chief executive Euan Sutherland, who took over the role in May this year.
He said the results showed the “well-documented challenges” faced by the bank. “My first few months in the role have been focused on putting in place the recovery plan for the bank,” he said, but warned there were “no quick fixes”.
In June, the Co-op announced it had reached an agreement with the bank regulator, the Prudential Regulation Authority, to plug a £1.5bn capital hole in its balance sheet. It includes a stock market listing, measures to raise money from bondholders and the sale of its insurance business, planned for 2014.
“The underlying issues in the results today are not new,” said Co-op Bank’s chief executive, Niall Booker
“We are now clearly focused on improving the capital position of the Bank… [and] at the same time, we have continued to lend, maintaining our focus on supporting our loyal customers, both in retail and through our continued focus on lending to small and medium-sized businesses.”
The capital shortfall came to light during Co-op Bank’s attempts to buy more than 600 bank branches from the partially state-owned Lloyds Banking Group.A deal was initially agreed in 2012, but fell through earlier this year. MPs are currently holding an inquiry into the circumstances of the collapsed deal. Lloyds executives have already claimed they knew about the hole in Co-op’s balance sheet months earlier. Weeks later, rating agency Moody’s downgraded Co-op’s debt to junk status, citing concerns about its capital position.