In its interim statement, the bank said that the financial performance of the business continues to be impacted by legacy issues as the Bank progresses with the transformation required, but that the figure was slightly better than expected.
The result has been attributed to net losses on asset sales of £38.2m (H1 2014: £1.9m net gain) as a result of the deleverage of Non-core assets to improve the Bank’s stressed capital resilience. The bank was also the only UK lender to fail a stress test by the Bank of England last year.
It also revealed an increase in project costs of £33.1m, to £101.9m, as the Bank takes "steps forward to deliver the transformation required and address the historic underinvestment in systems and processes".
Co-op also set aside £49.0m of conduct and legal risk charges, primarily comprising of £20.0m pertaining to H1 2015 interest on non-CCA compliant unsecured loans, and increases to existing provisions for Mortgages and CCA delivery costs of £15.0m. The provision for packaged accounts has been extended by £16.8m as a result of increased inbound complaints.
However the bank has seen a stronger performance across its key products compared to H1 2014. Mortgage applications and completions increased year on year with completions totalling £1.1bn compared to £0.2bn for the first half of 2014 and £0.9bn in the second half of 2014.
The bank stated that it will continue to focus on its mortgage business in the second half of the year, but admitted that the market is becoming "increasingly competitive" and that net growth will continue to be impacted by the run off from Standard Variable Rate products.
Earlier this month, the bank escaped a £120 million fine for "serious risk management and transparency failings". The PRA and FCA found that there were serious and wide-ranging failings in Co-op Bank’s control and risk management framework between 22 July 2009 to 31 December 2013.
The PRA also said that Co-op Bank had a culture which encouraged "prioritising the short-term financial position of the firm at the cost of taking prudent and sustainable actions for the longer-term".
Dennis Holt, Chairman, said:
"The Co-operative Bank is a significantly stronger organisation than it was when the current management team joined the business in 2013 and, 18 months into our five year plan to turn the business around, we continue to make solid progress on our journey to a full recovery.
"The investigations by the Financial Conduct Authority and Prudential Regulation Authority into what went wrong at the Bank are very important and the Board takes the terms of their recent notices and public censures extremely seriously. On behalf of the Bank, I would like to apologise again to customers for these past failings and reassure them that the Bank is a significantly stronger organisation today under the leadership of the current senior management team. The facts underlying the failings were largely set out in Sir Christopher Kelly’s independent report published in April 2014, and, since then, the Bank has made material progress addressing these shortcomings by enhancing the Bank’s governance, its processes, systems and practices. It has also significantly strengthened its Board and rebuilt its capital position.
"Nevertheless the Board is fully focused on continuing to remediate the findings of the investigation and strengthening the culture of the organisation. Of course, we have always said the turnaround will take time and there is further work ahead towards a full recovery."
Niall Booker, Chief Executive, added:
"The financial performance of the business will remain dominated by legacy issues for some time. However, this should not diminish the progress made against our strategic plan. We have come a very long way since June 2013 when our focus was to make sure the Bank avoided resolution and the need for financial support at the expense of the taxpayer.
"Although there were no new significant categories of conduct issues in this period, the Bank adjusted the existing provision by an additional £49.0m, up from £38.6m on the same period the previous year. The conduct costs primarily comprise £20.0m of interest on non-CCA compliant unsecured loans, which will be refunded to the customer, and increases to the delivery costs of existing provisions for mortgages and unsecured loans of £15.0m.
"There is a further provision for the mis-selling of packaged accounts of £16.8m. No new provisions have been made for PPI but we have noted a possible risk around the recent Supreme Court Decision in the Plevin case. Compensation payments in respect of Interest Rate Hedging Products are now materially complete. Customer redress on the larger mortgages and CCA programmes has progressed in H1 with the launch of IT based solutions to improve the pace of customer contact. We intend to have substantially progressed the majority of conduct redress and remediation issues by the end of 2015."
