Co-op bank reveals £400 million short-fall
The Co-operative Group has revealed that it needs £400 million to be able to pay customers compensation.
It was recently revealed the bank’s losses for last year could reach around £1.3 billion and that it will need more funds to cover compensation payments following its mis-selling of products.
The group currently owns 30 per cent of the bank and has already been provided with significant funds to cover the ongoing claims for poor conduct, including the mis-selling of payment protection insurance and unfair charges on missed payments.
Niall Booker, the chief executive of the bank, admitted the losses are larger than expected but the organisation has taken steps to cut costs by reducing the workforce by 14 per cent.
He also expects the bank to return to profit within five years – although this is likely to come with further job losses.
“The starting capital position of the bank for the four to five year recovery period is weaker than in the plan announced last year,” said recently-appointed Mr Booker.
He added the shortfall had been discovered during the bank’s recent Liability Management Exercise prospectus and it was will take time to assess the full financial impact.
The next step is to raise funds in the form of a rights issue, when existing shareholders will be given the first option to buy shares and may mean the Co-op Group will need to put in around £100 million to maintain its current shareholding.
“As a shareholder in the bank we will consider our position in relation to the proposed additional capital raising and make a further statement as and when appropriate,” the group said.
The bank had been set to reveal its full-year results this week but has opted to delay their publication until April 8th.
Last year, the bank revealed a £1.5 billion capital shortfall, largely as a result of a merger with the Britannia building society in 2009.