Newspaper article The Evening Standard (London, England)

Need for Extra PS400m Rocks Co-Op Bank's Recovery Bid

Newspaper article The Evening Standard (London, England)

Need for Extra PS400m Rocks Co-Op Bank's Recovery Bid

Article excerpt

Byline: Nick Goodway

CO-OPERATIVE Bank revealed a major setback to its recovery plans today, announcing it needs to find another PS400 million just three months after it raised PS1.5 billion to plug a black hole in its balance sheet.

The bank also said it now expects last year's trading loss to be between PS1.2 billion and PS1.3 billion, almost twice the PS709 million loss it revealed for the first half.

The news scuppers any plans Co-op Bank had to come to the stock market this year. It follows 12 months in which Co-operative Group had to hand control of the bank to its bondholders and the bank's former chairman, Paul Flowers, was arrested for alleged drug dealing.

Chief executive Niall Booker, who joined in June last year, said the bank had identified a further PS400 million of charges relating to mis-selling PPI, lapses in mortgage provision, interest rate hedging products and technical breaches of the Consumer Credit Act.

He said: "The result of providing for these items together with the cost of separation from Co-operative Group is that the starting capital position of the bank for the four to five-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."

He said the extra costs had only come to light since the bank completed its PS1.5 billion refinancing in December. He added that the cost of separating the bank from Co-op Group would be around PS40 million in 2013.

The effect of the extra PS400 million of losses will cut the bank's key balance sheet ratio (core tier 1) from almost 9% to 7.2% which is only just above the minimum 7% required by regulators.

Co-op Bank will turn to its new shareholders -- the hedge funds and institutions which agreed to swap their bonds for equity last year -- for the extra PS400 million. It is not immediately clear whether Co-op Group, which is the largest shareholder with a 30% stake, will take up its rights. It has already pledged to pump another PS263 million into the bank this year as part of the original bailout. …

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