Market conditions challenging
Turnaround ‘ahead of plan’ as Co-op Bank cuts losses
The bank saw its loss reduce from £204.2 million to £177m while there was an underlying profit of £17.1m compared to a loss of £26.2m in the first half last time.
The figures, however, include a number of what the bank calls “individually significant items” such as the gain from the sale of the Visa Europe share (£58.1m) and the fair value unwinds related to the merger with Britannia Building Society of £97.2m (H1 2015: £54.3m) which will not necessarily recur and are non-operational in nature.
Costs have been reduced from £262.9m to £222.8m.
The Bank has moved back into the Top 50 brands for customer service, climbing 46 places from last year.
Conduct and legal risk charges were £21.1m in the first half 2016 against £49m in 2015.
The bank has confirmed Liam Coleman, deputy chief executive, will succeed Niall Booker as chief executive on 1 January 2017 and John Worth will replace John Baines as chief financial officer next month.
The bank said there is no immediate operational impact from the EU referendum on the Bank given its UK-only footprint, but it could suffer from the wider uncertainty that has followed the result through possible contraction of UK mortgage market and a long period of low interest rates.
Mr Booker said: “The progress made during the first six months of the year has delivered a small core bank operating profit for the second successive half year period with mortgage originations remaining strong, an improved current account proposition, customer satisfaction scores at their highest level since 2013 and widening jaws between income and costs.
“In addition, with further investment in our digital channels to modernise the business around how customers want to bank today and significant progress on our major transformation and remediation programmes, much has been done.
“However, as we’ve said many times before, addressing the bank’s historic legacy issues will continue to impact our overall financial performance until the end of our plan period.
“The headline losses and the resulting reduction in the Bank’s Common Equity Tier 1 ratio were therefore flagged previously, and while losses have reduced year on year, the potential for headwinds in the economy as a whole presents further challenges.
“Spending on the continued delivery of our significant remediation and transformation projects has been higher than planned during the first half of the year but the bulk of this spending is offset by other one-time gains in H1. The increasing focus of future project spend will be on those projects generating a positive net present value, and which are more focused on business needs going forward than remediating past problems. This is positive.
“As noted by others, today’s market conditions are challenging for all retail focused banks and the macroeconomic uncertainty following the result of the EU referendum, including the likelihood of lower for longer interest rates, may restrict our ability to grow revenue in the short term.
“With regard to Executive succession, the previously announced appointments and those being announced today represent an orderly succession process, ensuring the Bank is in capable hands going forward.
“We have always been clear that turning the Bank around would be a significant journey of at least five years and so far the overall story remains one of progress and improvement. Much has been achieved in de-risking the Bank, in strengthening our resilience, in improving our IT platform, in demonstrating our values and ethics in action and in ensuring good outcomes for customers.
“Despite the challenges ahead, we continue to make progress building a differentiated, resilient bank which is valued by our customers for the quality of its service and I would like to thank colleagues for their hard work and dedication in meeting our customers’ needs.”
Chairman Dennis Holt, added: “In the first half of 2016, The Co-operative Bank continued to make good progress in transforming the business into a simpler and more efficient Retail and SME bank.
“We have continued to address and reduce areas of significant risk and this has contributed to improving the potential longer term viability of the Bank. I am encouraged by the progress we are making and that we are gradually seeing a viable core bank emerge.”