February 27, 2020 / 7:52 AM / 3 months ago

UPDATE 1-Co-op Bank losses deepen amid tough motgage market competition

LONDON, Feb 27 (Reuters) - Britain’s Co-operative Bank posted a pre-tax loss of 152.1 million pounds ($197.64 million) for 2019, after tough mortgage competition and payouts for mis-sold loan insurance continued to weigh on the lender.

The high street lender has been working to turn around its finances since its near-collapse and rescue by a consortium of U.S. hedge funds in 2017. The bank posted a 140.7 million pounds loss the previous year.

But bloated costs, including the bill for separating its IT systems from its former parent the Co-op Group, have kept it in the red.

The bank booked so-called ‘strategic project’ costs - including the IT project - of 96.6 million pounds in 2019. It also made a 63 million pound provision for compensating customers mis-sold payment protection insurance, part of a wider industry scandal.

Like many rivals, the lender has also faced pressure on its profitability from cut-throat mortgage market competition.

Co-op Bank’s net interest margin - the difference between what banks earn from loans and pay for deposits - fell to 1.75%, down from 2.05% the previous year.

The lender warned ongoing competition and the expected high cost of issuing regulatory-compliant ‘MREL’ debt this year would increase pressure on its margins.

Despite the increased losses, Co-op Bank said its turnaround was on track and it was taking market share from rivals in key markets.

Co-op Bank increased its mortgage book by 5% after generating 3.8 billion pounds of new business, while its consumer and small business deposits both grew 6%.

The bank’s core capital buffer - a measure of a lender’s financial strength - fell to 19.6% from 22.3%, but remains high relative to rivals in Britain.

The bank said its underlying loss of 19.7 million pounds was in line with expectations. It compared to an underlying profit of 23.6 million pounds in 2018. ($1 = 0.7696 pounds) (Reporting by Iain Withers, editing by Sinead Cruise)

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