Banks can be friendly, banks can be cool, banks can be ethical, but none of that matters much if they’re not safe. Since Co-op Bank discovered a £1.5bn ‘black hole’ in its capital stock in 2013 and had to be rescued by a consortium of hedge funds, getting people to believe it’s a safe place for their money has been boss Niall Booker’s overriding concern.
In 2014, Booker cut the Co-op Bank’s risk weighted assets (RWAs, otherwise known as its bad debt) by £2.5bn, in an effort to reduce its exposure to another financial crisis. Combined with a re-assessment of the value of these debts last year, this has increased the bank’s common equity tier one ratio from a paltry 7.2% to 13%. Phew, you can almost hear the customers saying. Well that’s alright then…
Capital ratios may not sound very exciting, but they are important. The problem is that Co-op Bank’s performance still isn’t nearly good enough, at least not for the Bank of England, which gave it a big, stinking ‘F’ on its stress tests in December. The central bank said then that Co-Op Bank would need to slash a further £5.5bn from its remaining £12.6bn RWA pile, and that’s going to take several years.
Co-op Bank is keeping a good pace toward achieving this target, but this hasn’t swayed customers. Though it has what it describes as a ‘loyal’ base, the bank lost 4% of its current accounts over the last year, reducing deposits by £2.2bn. This loss of business contributed towards a £264m pre-tax loss for the year, to December 31.
That may not exactly scream ‘crack open the Champagne’, but in fact it’s a strong performance. It’s testament to how badly Co-op Bank had been doing before that its losses were less than half what they were in 2013 (£633m).
Booker has achieved this partly by cost-cutting: the bank closed 72 branches and cut 1,124 staff last year (24% of its branches and 15% of its workforce), leading to £60m savings in operating costs. It didn’t hurt that the fines and charges it faced in 2014 were ‘only’ £101m (that’s good for banks these days) – a quarter of what they were the previous year.
As Booker said, ‘There is still much to do to transform the organisation into a sustainable business’, but in many respects, so far, so good. Focusing on its ethical brand could help, but in the end this will come down to cutting bad debt and regaining faith in the bank’s safety. The board certainly seems to think Booker’s doing a good job in achieving that – his tenure, which had been due to end this year, has been extended until ‘at least’ the end of 2016.