Co-operative Bank loses money and custom after dire year
The Co-operative Bank has released its results for the first half of 2014, showing it has lost £75.8 million before tax in the period, while over 38,000 customers – including more than 28,000 current account holders – have moved their business elsewhere.
Not so long ago, the Co-operative Bank was seen as the one financial institution that was different from the rest, while scandals raged about Libor, payment protection insurance (PPI) and the ‘casino banking’ that had brought the likes of RBS and Lloyds Group to their knees.
For a time, it seemed that a bank known for its ethical investment policy – meaning its customers’ money would not be invested in the arms trade, animal testing and the like – would emerge as a new challenger bank, particularly as it prepared to take over a number of old Lloyds TSB branches.
However, the reality turned out to be very different. The Co-op Bank had also lost money in the subprime collapse that sparked the credit crunch. It too has had to pay back lots of PPI cash. Worst of all, it had to pull out of the bid for the Lloyds branches, admitting it was sinking deep into financial trouble, with a £1.5 billion shortfall.
The losses in the same period last year were more severe than this at nearly £845 million, forcing the Co-operative Group to relinquish its majority share in the bank. When its’ chairman Paul Flowers was arrested over drug allegations, its stock sunk lower still – not least as it was noted the former Methodist minister had no significant banking experience, making him unqualified for the role.
Moreover, some believed the sale of a major stake in the bank to hedge funds might threaten the continuance of the Bank’s ethical investment policy, leading to the launching of a petition via the 38 degrees website calling for a government bailout on the grounds that this and the ‘co-operative principles’ of the organisation needed protecting.
Although the bank has had to close 46 branches in the past year, it has said it believes the business continuity challenge is being met. Announcing the results, chief executive Niall Booker was able to point to details like the fact that it had been able to raise over £400 million from investors to ensure its tier 1 capital ratio was raised from a precarious 7.2 per cent to a healthy 11.5 per cent.
However, the bank has also had to slash its workforce by 21 per cent – with more to come. Mr Booker told reporters: “A large proportion of our cost is in people and, consequently, we will continue to see job reductions. There have been one or two redundancy programmes and I believe there will be one or two more in that respect.”
That may come as further bad news, not least as the requirement for staff to hold an account with the bank may mean that the current account base is trimmed further by ex-employees deciding to switch.
Because of its previous strong reputation, the Co-operative Bank may have had much further to fall. However, fears about its ethical policy have proven unfounded, with this now legally enshrined in the bank’s constitution for the first time. The policy was also renewed after a consultation in June this year.
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