Despite finding ‘serious and wide-ranging failings’, regulators decided against handing a big fine to the Co-operative Bank last week. That’s perhaps just as well given its battered balance sheet and recent performance.
Today the bank, now 80% owned by hedge funds after its near-collapse in 2013, announced its losses had almost tripled in the six months to June to £204m. That was mainly the result of ‘project costs’ of £101.9m spent on improving its systems, £49m of legal charges and £38.2m of losses on asset sales.
But its operating income was also down 23% to £236.5m, suggesting its malaise is more than just the result of short-term problems. Though he admitted the company would be ‘dominated by legacy issues for some time’, chief executive Niall Booker didn't sound too panicked.
‘We have come a very long way since June 2013 when our focus was to make sure the Bank avoided resolution and the need for financial support at the expense of the taxpayer,’ he said. ‘There remains much work ahead but the actions we are taking are creating a resilient bank that can standalone, distinguished in the marketplace by its values and ethics.’
And to be fair there are signs of hope. Since its crisis hit, the bank has raised an additional £1.9bn of core tier one capital, and its net interest margin, comparable to a retail company’s net profit margin, increased by 0.12% in the last six months to 1.32%. It has also arrested a dramatic drop in customers: a net 2,250 account holders left the business in the period, compared to more 66,000 at the same time last year. That's still the wrong direction, of course.
The bank's recent ticking off by the Financial Conduct Authority was about more than numbers though – it also laid bare a ‘culture which encouraged prioritising the short-term financial position of the firm at the cost of taking prudent and sustainable actions for the longer-term.’
Booker said that many of the problem’s raised in the report have been addressed, but admitted, ‘the biggest challenge will be changing some aspects of the culture of the organisation and, although there are early signs of encouragement, this is a process that will take some time.' With the bank's finances and reputation in the state they are, he'd better get a move on.