Co-operative Bank returns to operating profit in ‘key milestone’
The Co-operative Bank has returned to operating profit for the first time in five years as the lender continues its recovery from near-collapse.
But on a bottom-line basis, the lender edged deeper into the red with pre-tax losses of £140.7 million for 2018 against £140.3 million in 2017 after taking further mis-selling charges and investing in IT.
Chief executive Andrew Bester said the group had achieved a “key milestone” in swinging to a £14 million operating profit last year, which comes after its £700 million rescue deal with hedge funds in 2017 that saved the troubled lender the brink of failure.
The earnings compare with operating losses of £84 million in 2017.
Mr Bester said: “The backdrop of political uncertainty and intense competition has created an extremely challenging banking environment but, despite this, we have made sizeable progress in the bank’s transformation this year, reaching a key milestone by recording an operating profit for the first time since 2013.
“While our ongoing investment in transformation means continued losses overall, this is nevertheless an important step towards achieving our goal of sustainable profitability.”
The bank said pre-tax results were affected by another £31.7 million for customer compensation, largely for payment protection insurance (PPI), as well as investment costs of £112.9 million amid an IT overhaul as it separates its systems from the broader Co-operative Group.
The 2017 rescue deal saw it effectively sever its historic relationship with the Co-operative Group as the hedge funds seized control of the lender.
But Mr Bester said the group was on the road to recovery, with 2018 seeing the best year for mortgage completions since 2010 with lending on a net basis – loans less redemptions – of £1.4 billion.
It saw a fall in the number of current account customers last year, although it said this was largely due to a drop in dormant accounts, with the value of current accounts holding steady.
Looking ahead to 2019, the Co-op said it wants to “diversify our product offering to service the needs of our customers better” and further strengthen its business account offering.
But it cautioned its net interest margin – a key measure of profitability for retail banks – was set to fall in 2019 amid sustained competition in the mortgage market.
The Co-op recently lost out in the first round of Royal Bank of Scotland’s £775 million fund which is aimed at increasing competition in Britain’s banking sector.
But it has the chance to apply for second, but smaller, pool of RBS funds.