Co-op Bank losses narrow as potential buyers circle

Troubled lender the Co-operative Bank said it was 'engaging' with potential bidders after putting itself up for sale last month as the group revealed it remained deep in the red last year.

Co-op Bank is engaging with potential bidders after putting itself up for sale last month. Picture: Kirsty O'Connor/PA Wire

Chief executive Liam Coleman said he was “pleased” with the response so far from suitors following the group’s move to launch a sale process amid concerns over its balance sheet strength.

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The bank, which has about four million customers, posted losses of £477.1 million for 2016 as it continued to be hit by “legacy issues” of the past and rock-bottom interest rates, although it narrowed losses from £610.6m in 2015.

Coleman said the group faced “a number of challenges” last year, adding: “Obviously, we are only a few weeks into the sale process but we are pleased with the interest to date and engaging with potential bidders as planned.”

The latest results mean the bank has racked up more than £2.7 billion of losses over the past five years.

The Co-op Bank confirmed it was also working on a plan to boost its capital reserves by up to £750m as an alternative to a sale, which could force junior bondholders to convert to equity.

The bank almost collapsed in 2013 after the discovery of a £1.5bn black hole in its finances and it was forced into a painful debt-for-equity swap. As a result, the loss-making lender is now majority-controlled by US hedge funds.

It had already warned over “significant” losses for 2016 in January this year after revealing its capital strength had deteriorated.

Coleman said: “The historically low interest rate environment, legacy issues and the cost of the scale of transformation required continued to impact on the performance of the business. Today’s results reflect those factors.”

The Co-op closed 59 branches last year, cutting its network to 105 branches, and slashed its workforce by more than 800 as part of a major turnaround plan launched in the wake of its near-collapse.

Its costs of the overhaul jumped to £275.6m as it also invested in the business, while the impact of record low interest rates saw its net interest income drop 16 per cent to £394.8m.

The Co-op Bank has suffered a dire past four years after a deal to buy hundreds of branches from Lloyds fell through in 2013 following its discovered of the £1.5bn accounting black hole, which was triggered by an ill-fated merger with Britannia Building Society.

As well as the large hole in its balance sheet, the Co-operative Group was also engulfed by scandal after controversial former chairman Paul Flowers, who was a Methodist minister, was filmed buying class A drugs and later fined for possession.