February 28, 2019 / 7:49 AM / 9 months ago

Co-op Bank losses edge up as it struggles with turnaround

LONDON (Reuters) - Britain’s Co-operative Bank edged deeper into the red in 2018 due to tough market conditions, higher payouts for past mis-selling of insurance and the rising cost of a major IT project.

FILE PHOTO: People walk past a branch of The Co-operative Bank in London, Britain, February 13, 2017. REUTERS/Hannah McKay/File Photo

The lender’s adjusted loss before tax increased to 140.7 million pounds from 140.3 million pounds the previous year.

Co-op Bank has struggled to turn around its performance after its near-collapse and rescue by a consortium of U.S. hedge funds in 2017.

Chief executive Andrew Bester told Reuters the bank’s owners were committed to “a multi-year transformation of the bank”, despite market speculation that continuing losses could see them seek an exit through a sale.

“We’ve done a five-year plan, we’re working towards getting the business into a strongly profitable position by 2023,” Bester said.

He said the lender faced an “extremely competitive market” but Brexit uncertainty had no discernible impact on customer behaviour to date.

A jump in exceptional costs weighed on the lender’s finances, including the cost of separating from its former parent company the Co-operative Group’s IT systems.

Expenditure on so-called strategic projects nearly doubled to 94.3 million pounds, up from 53.3 million the previous year.

Co-op Bank said the IT separation would complete this year.

REDRESS COSTS

An increase in claims for mis-sold payment protection insurance - part of a wider industry scandal - pushed up redress costs to 31.7 million pounds from 27.4 million pounds the previous year.

The loss ate into the bank’s core capital buffer - a key measure of a lender’s resilience - which fell to 22.3 percent from 24.7 percent the previous year, although the bank remains well capitalised relative to its rivals.

Co-op Bank increased its net mortgage lending to 1.4 billion pounds, but reported a fall in current accounts to 1.3 million, down from 1.4 million, which it said was primarily down to the closure of dormant accounts.

“What I’m not interested in is a blind pursuit of customer numbers at all cost. For me it’s about customers that are engaged in what we do,” Bester said.

The company’s first operating profit since 2013 showed the lender was moving in the right direction, he added.

With one-off costs stripped out, the firm reported an operating profit of 14.7 million pounds, compared with an operating loss of 84 million pounds the previous year.

The bank’s net interest margin - a measure of underlying profitability - also increased to 2.05 percent, up from 1.73 percent.

Co-op Bank said it planned to expand its business banking operations despite missing out last week on the largest grants available under a 775 million pound competition fund stumped up by larger rival RBS to appease regulators.

The lender is taking part in a separate part of the fund, known as the incentivised switching scheme.

Reporting by Iain Withers; Editing by Rachel Armstrong/Mark Potter and Emelia Sithole-Matarise

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