Co-op Bank reports interim loss of £135m

Bank announces losses and confirms restructuring deal will complete next month

The Co-operative Bank has reported a loss of £135m for the first half of 2017 (2016: £177m).

The report – the first since the bank agreed to a £700m rescue package with its investors in June –  says the lower operating income and increased exceptional items incurred during the first six months of 2017 were offset by reduced operating costs and project spend.

Total operating expenditure reduced by 9.9% to £200.8m in the first six months of 2017 (2016: £222.8m), reflecting “progress made in the cost reduction programme”. Its net interest margin decreased to 1.32% (2016: 1.42%). The bank’s total capital ratio stood at 16.8% as at 30 June compared to 17.7% at the end of 2016.

The bank also closed 10 branches in the six months to 30 June, bringing the total number to 95. Current account numbers reduced by just under 2% as around 25,000 customers moved elsewhere, bringing the number to 1.4 million accounts.

The Co-op Bank put itself up for sale in February, after its capital base dipped and it struggled with heavy restructuring costs, weak income and low-interest rates. On 28 June, the bank announced that its board had decided to support a rescue plan in which the bank’s US hedge fund creditors (including BlueMountain Capital, Cyrus Capital Partners, GoldenTree Asset Management and Silver Point Capital) would swap their debt for a stake in the bank.

The debt-for-equity swap with hedge funds would mean the bank can continue as a standalone entity but would cut the Co-op Group’s stake in the organisation from 20% to about 1%.

According to the report, it is expected the restructuring deal will be completed in early September 2017.

‘Legacy issues’

“Since 2013, the bank has faced considerable challenges, the majority the result of legacy issues,” said Dennis Holt, chair of the Co-operative Bank. “During the last three years […] we have focused relentlessly on reshaping our business around how customers want to bank today, with significant improvements in our digital proposition and investment in our product range and ethical brand, and we are pleased with the progress we have made so far. Our customer service has remained strong and we are in the top three banks for current account customer service in the UK.”

Related: Should the Co-operative Bank keep its name after hedge funds take it over?

Liam Coleman, who was appointed the chief executive in January, believes it is the bank’s values and ethics which continued to set it apart from competitors.

He said: “We are delighted to be celebrating the 25th anniversary of our customer led Ethical Policy in the second half of 2017 and we will be investing in our differentiated brand. We are the only UK high street bank with a customer-led Ethical Policy and in July 2017 we launched our third annual Values and Ethics Report which brings together stories and case studies to illustrate how we make the difference.

“In the first half of this year, customer donations to our charity partners, including donations from our Everyday Rewards current account, reached £379,197.”

  • Read the Co-operative Bank’s full 2017 Interim Report here.

What will the Co-operative Bank’s new governance structure look like?

  • On completion of its Restructuring and Recapitalisation planb (the Settlement Date), the bank will become a wholly owned subsidiary of a newly incorporated holding company (Holdco). Holdco was incorporated and registered in England and Wales as a private limited company under the name of Balloon Street Holdings Limited on 13 July 2017, with company number 10865342.
  • It is intended that, with effect from the Settlement Date, and subject to obtaining appropriate approvals, Holdco will change its name to The Co-operative Bank Holdings Limited.
  • Holders of Holdco A Shares who hold 10% or more of the fully diluted A Shares at completion (and fulfil other criteria) will be entitled to subscribe at par for B Shares on the basis of one B Share for every 1% of A Shares held by them. A Shares will bear the primary economic interest in Holdco but B Shares will, subject to limited exceptions, carry all of the voting rights at a general meeting.
  • B Shareholders (which are expected to include Anchorage Capital, Invesco, Cyrus Capital, Golden Tree and Silver Point Capital) will have the right to nominate up to two directors to the Holdco board and, via Holdco’s ownership of the bank, to the bank’s board (the B Shareholder Nominee Directors) and have the benefit of certain shareholder approval and notifications and other rights.
  • As at the Settlement Date, the Holdco Board will comprise up to ten members including up to two B Shareholder Nominee Directors, six independent Non-Executive Directors, the Chief Executive Officer and the Chief Financial Officer.
  • Holdco “has incorporated the principles of values and ethics into its incorporation articles as they relate to oversight of the bank”. The Holdco Articles of Association to be adopted as of the Settlement Date continue to include core provisions relating to values and ethics.
  • It is expected that, as of the Settlement Date, and going forward, the membership of the bank’s board will be the same as that of the Holdco board. Tom Wood joined the Bank as the Chief Restructuring Officer (CRO) Designate, subject to regulatory approval, in July 2017, and will report to the Chief Executive Officer. He was appointed to the Holdco board on 13 July 2017.
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