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Co-op Bank faces £709m loss; boosts mortgage lending

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  • 29/08/2013
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Co-op Bank faces £709m loss; boosts mortgage lending
The Co-operative Bank accelerated mortgage lending in 2013 despite toxic loans delivering a half a billion pound hit to the group’s balance sheet.

The bank’s interim financial results revealed it had advanced £1.6bn to retail mortgage customers in the six months to June 2013, 6.7% higher than the £1.5bn lent in the same period of 2012,. Two-fifths of loans went to first-time buyers.

At the same time, the group said it had lost £559m in the six months to end of June, having written off £496m of bad loans at Co-op Bank.

The bad loans relate mostly to Britannia Building Society, which merged with Co-op Bank in 2009. The Optimum portfolio, a closed book of intermediary and acquired mortgage book assets, alone delivered a loss of £50.5m – almost twenty times the amount suffered in 2012.

The Co-op, which advances 30% of mortgages through intermediaries, said it planned to focus its strategy around its strength in core relationship banking providing current accounts, residential mortgages and savings products to individuals and small business banking customers.

Including the write-downs, Co-op Bank alone reported a total loss of £709m before tax, compared to a loss of £58.6m the previous half year. The Co-op Group’s food and other businesses reported profits which offset the loss a little.

The bank has faced pressure from regulators to strengthen its balance sheet after revealing earlier this year it had a £1.5bn capital shortfall, and is planning on disposing assets and tapping bond holders to plug the gap.

However, its situation is perilous, as the bank’s chairman Richard Pym identified.

He said both the Co-operative Group and holders of the bank’s subordinated capital securities will contribute broadly equal amounts to generate £1bn of the total additional £1.5bn core capital required to secure the Bank’s future.

“In addition, in 2014, contingent on a successful exchange offer, the Co-operative Group will contribute up to a further £0.5bn expected to be funded primarily through the sale of its insurance businesses. The execution of the Exchange Offer is vital to stabilising the Bank’s capital position; indeed, we will not remain a going concern without it.”

He said the group expects to announce further details in the fourth quarter.

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