UK mutual business The Co-operative Bank needs to raise approximately GBP400m to meet additional costs related to previous misconduct and poor documentation, following a review, the BBC reported on Monday.
Compensation must be paid by the bank for mis-sold loan insurance, breaches of consumer credit rules, repayments to mortgage customers who were overcharged and compensation to small companies mis-sold complex hedging products. The majority of the additional costs are said to be related to PPI mis-selling and lapses in the provision of mortgages.
According to the BBC, the additional costs will result in the bank making a loss of GBP1.2bn to GBP1.3bn for 2013, excluding profit generated by its restructuring.
Up until 2013, The Co-operative Bank was controlled by the Co-operative Group, reportedly the largest mutually-owned company in the UK. A shortfall of GBP1.5bn capital was identified by regulators, which resulted in refinancing. This led to control of the bank being passed to private investors including a group of hedge funds, which invested almost GBP1bn into the bank in exchange for a 70% ownership stake. To add to the bank’s problems, its former chairman Paul Flowers was involved in an illegal drugs scandal.
The Co-operative Bank has around 4.7 million customers and is the eighth-largest provider of current or checking accounts in the UK. In an effort to help overcome its problems, the bank has reduced staff numbers. As of the end of 2013, the bank had cut 1,000 staff, which equates to about 14% of its employees. It has also reduced its non-core assets by around GBP2bn, the BBC said.
Chief Executive Niall Booker stated “The result of providing for these items, together with the cost of separation from the 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”.