Troubled Co-op Bank yesterday admitted it needed to raise a further £400 million to cover costs arising from past misconduct isues.
Troubled Co-op Bank yesterday admitted it needed to raise a further £400 million to cover costs arising from past misconduct isues.
The lender – which is set to book a loss of up to £1.3 billion in the next two weeks – said it was issuing new shares in order to cover liabilities arising from payment protection insurance claims and technical breaches fo the Consumer Credit Act.
The bank is under the control of bondholders following a major refinancing last year after a £1.5 billion black hole was discovered in the company’s balance sheet.
The unexpected share placing means the capital position of the bank is weaker than previously thought. Its capital ratio – a measure of its financial strength – is now expected to be around 7.2%, compared with previous guidance of near 9% and against the regulatory minimum requirement of 7%.
“The new executive team brought in just 9 months ago is continuing to review aspects of the Co-operative Bank’s legacy operations, assets and liabilities,” chief executive Niall Booker said.
“As a result of this continuing review we are unearthing a range of issues which the new executive team is having to address.
“Whilst these risks were identified in the Liability Management Exercise prospectus the review means we are now quantifying the financial impact of some of those risks.
“The result of providing for these items together with the cost of separation from the Co-operative Group is that the starting capital position of the bank for the 4-5 year recovery period is weaker than in the plan announced last year. “The proposed capital raise would enable us to reset this starting point and continue with the execution of our original business plan.
“The objectives of this plan remain unchanged and there are some early indications of progress.
“We have started to simplify the business, reduce costs and de-risk assets as we drive the change needed to return to our roots as a bank focused on our retail and SME customers. However, there remain significant challenges ahead.”
The loss-making bank’s workforce has reduced by 1,000 in the last year, equivalent to 14% of its workforce, as part of plans to reduce its branch estate by 15%.
The bank is now 30% owned by the Co-operative Group, with the remainder held by other investors of which no group holds more than a 9.9% stake.
Full-year financial results for 2013 are expected to be announced on or before April 8.