The Co-operative Bank has reported an annual loss of £477m. This is lower than the £610.6m loss of 2015, but marks the fifth year in a row the bank has lost money and brings the total accumulated loss to £2.6bn.
In its 2016 annual report the bank, in which the Co-operative Group still has a 20% stake, claimed the loss is due to the continued impact of legacy issues, citing adverse impacts such as a lower net interest income, an “increase in the fair value amortisation associated with the merger with the Britannia Building Society” and “higher remediation and strategic project costs”.
“2016 was a year of both progress and challenge for the Co-operative Bank, culminating in the board’s decision announced on 13 February to commence a sale process and consider other options to build capital,” said bank chair, Dennis Holt.
He added that the bank had only been able to consider these options because of the progress made in delivering its turnaround plan. “The Bank is stronger in many areas than in 2013; these options would simply not have been feasible before,” he said.
Although the bank is only a few weeks into the sale process, CEO Liam Coleman said the organisation was “pleased with the interest to date” and was engaging with potential bidders as planned. Mr Coleman joined the bank in January.
As a back-up alternative to a sale, the bank is exploring plans to raise an additional £750m, and has also announced plans to close an additional 10 branches by the end of 2017, bringing the number down to 95.
An ongoing separation
The bank is still in the process of separating from the Co-operative Group, and throughout 2017 and beyond will continue to rely on the Group for a number of services, including critical IT services, personnel and assets. According to the bank, the Group may terminate certain critical IT services on 12 months’ notice.
It completed the transfer of its core mainframe system to a new IBM managed environment in February, but warns that “this ongoing separation project is complex and may be more costly and take more time than currently contemplated.”
The bank stated that part of its focus for 2017 would be on “continued investment in the brand and development of products and services which reflect the bank’s customer-led Ethical Policy”.
“We believe there is value in our distinct position in the market and that the relationship we have with customers, centred on our values and ethics, distinguishes us and remains a key reason why four million customers choose to bank with the Co-operative Bank,” said Mr Coleman.
“The board and the management team believe there is strong potential to build the franchise, using the strength of our brand, our reputation for strong customer service and our distinct values and ethics.”
However the bank’s use of its current brand still has an uncertain future. The bank and the Co-operative Group entered into branding co-existence principles in 2013 and had been negotiating a more detailed agreement which has not been finalised. The Co-operative Bank trademark belongs to the bank, but the Group has objected to an application to register ‘The Co-op Bank’ as a trademark.
According to the bank, the Group links its support for the bank maintaining the term ‘co-operative’ to the bank’s involvement in Group’s membership scheme. The bank’s broader participation in that membership scheme has been under discussion, but these discussions have been put on hold until the future ownership of the Bank is more certain.
The bank’s co-operative nature is also monitored quarterly by Co-operatives UK against a framework measuring how it is working in a co-operative manner.
“With its shift in ownership in 2013, the Co-operative Bank sought to embed its co-operative values and ethics in its vision, its constitution and its guiding documents,” said Ed Mayo, secretary general of Co-operatives UK. “To assure that the bank is operating in line with these values and ethics, Co-operatives UK worked with the International Co-operative Alliance to develop a set of criteria and we assess the Bank’s activities regularly to confirm they are meeting them.
“The Co-operative Bank, though no longer a member-owned co-op, is without question a business that promotes co-operatives and works in line with the movement’s values and ethics and all those who wish to see that continue should wish it well.”
Laura Carstensen, chair of the bank’s values and ethics committee, added: “We stepped up our support for the Co-operative sector through our sponsorship of The Hive, a new business support programme for people wanting to start or grow co-operatives or community enterprises.
“I am delighted that the partnership has already been able to help 77 co-operatives and other groups.”