Co-op Bank to raise extra £400m after hole discovered

Co-op Bank

Related Stories

The Co-op Bank plans to raise another £400m by issuing new shares following the discovery of additional costs related to past misconduct and poor documentation.

The biggest part of the additional costs relates to PPI mis-selling and lapses in the provision of mortgages.

The bank said the discovery meant it would make a loss of £1.2bn to £1.3bn for 2013.

It will release its full accounts in April.

"The starting capital position of the bank for the four to five year recovery period is weaker than in the plan announced last year," said chief executive Niall Booker.

Start Quote

One important question is why these misconduct costs did not come to light last year”

End Quote

Mr Booker said the issues had already been discovered in its Liability Management Exercise prospectus, but said it was only now quantifying the financial impact of some of the risks.

"When I heard about this my jaw dropped because I did think that at last this was a bank on the way to recovery," said BBC economics editor Robert Peston.

Rescue

The Co-op Bank had to be rescued last year after it was left with a £1.5bn capital shortfall, with many of its troubles stemming from the merger with the Britannia building society in 2009.

In November last year, it announced that a group of private investors, made up mostly of hedge funds, would inject nearly £1bn into the bank in exchange for a 70% ownership stake.

Later that year the company was hit by a separate scandal when its chairman Paul Flowers was arrested in connection with a drugs supply investigation.

The group is cutting staff and selling off parts of its business in an effort to survive.

'Simplify'

The Co-operative Bank said that as of the end of 2013, it had cut 1,000 staff equating to about 14% of its total.

It also said it had reduced its non-core assets by around £2bn.

It said raising the extra £400m would enable it to continue with the execution of its original business plan.

"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," added Mr Booker.

More on This Story

Related Stories

From other news sites

* May require registration or subscription

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    MUSLIM ACCOUNTS 06:36:

    HSBC has told three Muslim organisations it will close their bank accounts. These are the Finsbury Park Mosque in North London, a think-tank on Islamic issues called the Cordoba Foundation based in West London, and a Muslim charity in Bolton called the Ummah Welfare Trust, which works in 20 countries giving aid. HSBC says the decisions were "absolutely not based on race and religion".

     
  2.  
    BANKER BONUSES 06:30: Radio 5 live

    More from Ms Mangwana on Wake Up to Money. She says the proposed seven year rule may be more about changing culture in banking and the way in which bankers view their bonuses. But she also points out bonuses are generally paid in tranches that vest over a number of years, already (commonly anything between three and five years). "That's the current formula and there are [already] mechanisms to reclaim those bonuses," she says.

     
  3.  
    TWITTER SHARES 06:21:
    Twitter

    In case this happened too late for you, Twitter shares rocketed 30% on stronger-than-expected financial results. Revenue more than doubled in the second quarter. Shares rose to $50 in after hours trading. Still down on its high of $74.73, hit in December.

     
  4.  
    BANKER BONUSES 06:10: Radio 5 live

    Samantha Mangwana, employment lawyer at Slater Gordon told Wake Up to Money seven years is a long time to hold a bonus and regulators may well find it difficult to reclaim money. It is highly likely bankers will have gone and spent the money already, she says, and have nothing that the Bank of England can reclaim.

     
  5.  
    BANKER BONUSES 06:07: BBC World News
    Tom Stephenson

    Those new rules on bankers' bonuses are expected to recommend a claw-back period of seven years. Tom Stephenson from Fidelity Worldwide on BBC World News says they could have been tougher: "One of the suggestions was that bankers could be jailed for a significant fall in profits - that's quite something isn't it. Even so, being able to claw back bonuses for seven years is pretty draconian."

     
  6.  
    06:02: Matthew West Business Reporter

    Good morning folks. It's looking like a busy day today. We also have trading updates from ITV and house builder Taylor Wimpey. As always you can get in touch via email at bizlivepage@bbc.co.uk and on twitter @bbcbusiness

     
  7.  
    06:00: Rebecca Marston Business reporter, BBC News

    Welcome again to the Live page. We're going to be banking heavy. There's Barclays results - in about an hour - and later this morning the Bank of England will release new restrictions on bankers' bonuses, said to be the toughest in the world. We'll see.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.