Banking arm gives Co-op £559m loss
The Co-operative Group has plunged to £559 million first-half losses as heavy bad debts in its banking arm wiped out profits from its supermarkets.
The group said there will be "no quick fixes" as it embarks on a four-year turnaround plan after reporting pre-tax losses of £709.4 million in the Co-operative Bank in the six months to the end of June.
City regulator the Prudential Regulation Authority (PRA) said the scale of the losses did not alter its demand that the Co-op must plug a £1.5 billion hole in its balance sheet.
The Co-op, which employs more than 100,000 people, warned of job losses as it restructures the wider group as well as the bank - but did not say how many staff will go. New boss Euan Sutherland said: "It's inevitable in a restructuring of this size that there will be some jobs at risk." He said the Co-op has "no plan B" for rescuing its bank, as it finalises plans to inject £1.5 billion into the embattled division.
Bondholders ranging from pensioners to hedge funds will have to take a loss on their investment under plans for a "bail-in" in coming months. They will be forced to contribute £500 million through an "exchange offer", which will result in a stock market listing for the bank. The Co-op will inject £1 billion itself into the bank.
The bank, which employs about 10,000 staff, slashed the value of its loans by £496 million as corporate loans acquired with its disastrous takeover of Britannia Building Society in 2009 continue to deteriorate. It also wrote down almost £150 million on a new IT system, which had been planned by former management. And the bank booked another £61 million to cover the cost of previous misconduct - including £25 million for mis-sold payment protection insurance, £26 million for credit card and identity theft protection and £10 million for mis-sold interest rate swaps.
The bank's £709.4 million losses compare with £59 million losses a year earlier, while at group level, the losses compare with £18 million of profits in the first half of 2012.
Mr Sutherland, who replaced former boss Peter Marks in May, said: "We are sorry but we are a new team and grasping the nettle and getting on with fixing the situation." He said while there has been a small trickle of deposits leaving the bank, customers have largely been loyal.
The PRA said it factored in the scale of the losses when it signed off the Co-op's turnaround plan in June. It said: "The Prudential Regulation Authority anticipated the likely scale and source of these losses when it made its assessment of the bank's capital position in June. Consequently, the announcement today does not affect the PRA's assessment that the Co-operative Bank has a capital shortfall of £1.5 billion relative to 7% core equity capital after adjustments."
Profits in the food arm, which is the UK's fifth-biggest grocer with more than 2,700 supermarkets and convenience stores, dipped to £117.4 million from £119 million a year earlier in a "challenging market". The Co-op said it expects a better second half from the retailer, as a turnaround focusing on better stock availability and store refits gathers pace. Operating profits in its pharmacy business dipped to £14.3 million from £16.1 million a year earlier as it was hit by government funding cuts to medicines. But profits in its Funeralcare arm advanced 15% to £41.8 million.