Co-op bank needs a further £400m for mis-selling charges
Struggling bank admits its starting position for last year's rescue plan is even weaker than first thought
THE Co-operative Bank has revealed it needs to raise an additional £400m to cover costs relating to new misconduct charges and poor paperwork.
The bank is looking to its existing shareholders to cover the new costs, which relate to mis-selling PPI, mortgages and interest rate swaps as well as "technical breaches of the Consumer Credit Act".
Last year, Co-op set out a rescue plan to restore the bank back to profitability in the next five years after a £1.5bn black hole was uncovered in its banking division.
However, today's announcement pushes the bank into an underlying pre-tax loss of up to £1.3bn for last year, meaning that the starting capital position of the rescue plan is even weaker than originally thought.
"The increased losses mean we have started from a lower capital ratio than we'd like – we only have a thin sliver of surplus capital," said Niall Booker, the bank's chief executive. He added that 1,000 jobs out of a 10,000-strong workforce had already been axed in a race to cut costs.
The bank avoided collapse in October by striking a deal with a consortium of hedge funds and bond holders, leaving the Co-op Group with just a 30 per cent stake in its banking division.
Covering this new £400m shortfall so soon after last year's rescue will be a "big blow" for the bank, says the Financial Times. It also comes as the bank is trying to restore its reputation after a string of scandals including its former chairman Paul Flowers being filmed allegedly buying illegal drugs.
The Co-op Group itself is already £1.2bn in debt and had hoped not to have to contribute more funds to the bank, says the FT. A further dilution of the Group's stake in the bank could lead co-operative activists to press for a change of name.
The Co-op is among several banks having to refund credit card and loan customers after errors were found in their paperwork. The bank was due to publish its 2013 results on Wednesday, but has now said these will be delayed until 8 April at the latest.