The conduct and risk issues were discovered after an ongoing review of the Co-operative Bank’s legacy operations, assets and liabilities.
The bank confirmed the £400m of conduct and legal legacy issues include legacy PPI issues, mortgage product first payments, interest rate swaps, third party insurance and technical breaches of the Consumer Credit Act.
Mortgage Solutions also understands the conduct risk provisioning will cover legacy forbearance issues.
The bank said on top of these conduct issues, one-off costs associated with the legal separation of the bank from the group are expected to be roughly £40m in 2013.
The Co-op is one of a number of banks having to refund credit card and loan customers after errors were found in their paperwork.
However, the bank also admits to a further capital tier ratio problem, with an expected 2013 year-end CET1 ratio of around 7.2%, far below its previous expectations of ‘towards the upper end of a range of below 9%.’ The regulatory minimum requirement is 7%.
Chief executive, Niall Booker said: “We have started to simplify the business, reduce costs and de-risk assets as we drive the change needed to return to our roots as a bank focused on our retail and SME customers. However, there remain significant challenges ahead.”
The bank has already delayed the publication of its annual report from 26 March but confirmed it would be out by 8 April at the latest with losses of between £1.2 and 1.3bn for the last financial year.
In October last year, the Co-operative Group announced a restructure which would give it a 30% stake in the struggling Co-op Bank, with 70% parcelled out to hedge funds and other creditors.
The Co-op continues to attempt to restore its reputation after a string of scandals including its former chairman being filmed buying drugs and the resignation of its group CEO Euan Sutherland earlier this month.
The bank said it is business as usual in other areas of the group, as the Co-op plans to launch a further 100 convenience stores in Wales alone in 2014. Intermediary lender Platform also cut its mortgage rates in February in a bid to gear up its lending and reinvigorate the brand.
