Co-op Group makes loss as bank stake written off

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The Co-op Group has reported its first annual loss since 2013 after declaring that its stake in Co-operative Bank is worth nothing.

Co-op Group reported a pre-tax loss of £132m for 2016, a sharp deterioration on the previous year’s profit of £23m.

It reduced the value of its 20% stake in Co-operative Bank from £185m to zero, reflecting the bank’s continuing problems.

The group also said that its financing costs had risen by £74m in 2016.

The Co-op Bank, which has four million customers, put itself up for sale in February.

It almost collapsed in 2013, but was rescued by a group of US investors. Under that deal, Co-operative Group kept a 20% stake in the bank.

But the new owners have struggled to revive the bank’s fortunes. Last year, it lost £477m – the fifth consecutive year of losses.

Co-op Group said it had made a “prudent valuation” of its stake in Co-operative Bank based on the “volatility” caused by the sale of the bank.

New markets

Co-op Group said that operating profits, which exclude the loss related to the bank stake, were up 32% in 2016 at £148m.

Those profits were boosted by the sale of its crematoria and a 3% rise in sales.

“We’ve made great progress in rebuilding our Co-op, with all our businesses delivering strong performances,” said chief executive Steve Murrells.

He said that in 2017, the Co-op Group would look to expand outside of its current markets.

“We are exploring how we can enter markets that are not serving people well and challenging existing providers,” he said.

Retail analysts are speculating that could mean an entry into the electricity and gas business.

“Electricity and gas providers are regularly in the press for customer complaints and generally not serving customers well, therefore this looks to be a logical step for the Co-operative given their ambition to enter new markets,” said Steve Dresser, director at Grocery Insight.

“It would be a good brand extension, but isn’t without risk given the volatile nature of the market,” he added.

Co-op Bank reports loss as suitors circle

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The Co-operative Bank has reported another a loss of £477m, one month after it put itself up for sale.

The loss is not as deep as the £610m recorded in 2015, but it is the fifth year in a row the bank has lost money. The bank, in which the Co-operative Group still has a small stake, was rescued from the brink of collapse by a group of hedge funds in 2013. So far, no bidder has declared themselves, but the bank said it was “pleased with the interest to date”. It was forced to offer itself for sale after it was unable to reach a strong enough footing to satisfy the Bank of England’s regulatory requirements.

The bank blamed low interest rates and the higher-than-expected cost of its turnaround plan for its failure to meet the Bank’s Prudential Regulation Authority (PRA) rules. The PRA had welcomed the bank’s decision to put itself up for sale. But the planned sales raised concerns from the former business secretary, Sir Vince Cable, and two Treasury Committee MPs. The Co-op Bank has four million customers and is well known for its ethical standpoint, which its board said made it “a strong franchise with significant potential” to prospective buyers.

The Co-op Bank puts itself up for sale

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The Co-op Bank says it is putting itself up for sale and is inviting offers to buy all of its shares.

The bank, 20% owned by the Co-operative Group, almost collapsed in 2013, and was bailed out by US hedge funds. The bank has four million customers and is well know for its ethical standpoint, which it says makes it “a strong franchise with significant potential” when it comes to a sale. It has not been able to strengthen its finances because of low interest rates.

‘Financial resilience’

Bank of England sources told the BBC that the Co-op had been operating with below recommended capital levels for some time, so an action plan was needed. From among potential buyers, the TSB has told the BBC that although they are focused on completing the separation of their IT systems from Lloyds, it would be interested if the price was right. A spokesman for the Bank of England’s Prudential Regulation Authority said it welcomed the action announced today by the Co-operative Bank. “We will continue to assess the bank’s progress in building greater financial resilience over the coming months,” it added.

Black hole

The Co-operative Bank merged with the Britannia building society in 2009. The deal was later held responsible for the near collapse of the bank. In 2013, the bank revealed a £1.5bn black hole in its accounts, which led to its rescue. Bank chairman Paul Flowers also stepped down over concerns about expenses in 2013, before pleading guilty to drug possession the following year. And in January 2016 the Bank of England banned two former Co-operative Bank executives – former chief executive Barry Tootell and former managing director Keith Alderson – from holding senior banking positions. In the autumn of 2015 the Co-op Bank said it would remain loss-making until the end of 2017.

‘Customer service’

Dennis Holt, bank chairman, said: “Customers value the Co-operative Bank and our ethical brand is a point of difference that sets us apart in the market. “While our plan has been impacted by lower for longer interest rates, the costs associated with the sheer scale of the transformation and the legacy issues we faced in 2013, there is considerable potential to build the bank’s retail franchise further using the strength of the brand, its reputation for strong customer service and distinctive ethical position.” The bank also said it had made considerable progress in delivering its continuing turnaround plan. And it says it is considering ways to raise funds from existing and new providers. Separately, it says it has resolved a key contractual differences with Capita.Western Mortgage Services, part of Capita, will continue to provide mortgage administration services and new mortgage application processing for the bank and its clients.

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