Co-op profits slump – and boss has to apologise over PPI sales

By MARTIN FLANAGAN
Published on 24/08/2012 02:48

CO-OPERATIVE Group has seen its profits slump by a third as its boss apologised on Thursday for its self-styled “ethical” banking arm mis-selling payment protection insurance (PPI).

The Co-op, which is paying £750 million for 632 Lloyds Banking Group branches to “challenge” Britain’s big five publicly-quoted banks, said its financial division was hit by the recession and a doubling of bad debts to £92m.

Chief executive Peter Marks also unveiled worsening food sales which were down 1.2 per cent in the first six months of 2012 as it was impacted by consumers tightening their belts and a spell of bad weather.

Underlying group operating profits fell from £264m to £174m on flat sales of £6.5 billion. After PPI payments rose £40m to £130m, profits before tax and member payments tumbled from £155m to £69m.

Marks, who is stepping down next May after six years at the helm, said that, despite the PPI episode, the Co-op still remained the ethical bank on the high street.

“We are not just about maximising profit. We have social and ethical goals,” he said. He said the Co-op had not been tainted by recent banking scandals such as money-laundering and Libor fixing but was not claiming to be a “paragon”.

He said on PPI: “If we could turn the clock back we would have done it. We are not perfect.”

The Co-op Bank, which doesn’t include the group’s insurance operations, saw losses widen from £9.8m to £58m.

Including other financial operations, the group’s underlying banking profits fell 68 per cent to £37m. Marks said the performance reflected the uncertainty in the eurozone and a lengthy low interest rate environment that squeezed profit margins.

Food profits were down 16.4 per cent at £119m.

On the decline in food sales at the Co-op – which bought rival supermarket chain Somerfield at the height of the credit market crisis – Marks said: “It is the first time I have witnessed a shrinking grocery market. People are spending less on food.”

He said that in an unprecedentedly tough consumer climate a “disproportionate” number of products were being sold on price promotion – between 35 and 40 per cent compared with traditional levels of about 25 per cent.

He said he expected no or minimal economic improvement in the UK for the rest of this year and 2013.

A success story was the Co-op’s specialist businesses, ranging from funerals to pharmacies, where profits jumped over 19 per cent to £62m.

The group said it planned to invest £2bn billion across the whole business over the next three years, but declined to give a divisional allocation.

Marks said the deal to acquire the Lloyds branches, a divestment forced on the bank by the European Commission for the taxpayer aid it received, was on track to complete by the end of this year or early 2013.

After completion, the Co-op will have 180 branches in Scotland compared with just four currently.