Co-operative Bank: Core business posts profit – but group warns there is still hard work ahead
The Co-operative Bank's core business has posted a profit for the first three months of the year – shrugging off the losses it made last year.
The figures
It was a bit of a mixed bag, with total core bank net customer loans up from £14.7bn at the end of December to £15.2bn, thanks to growth in mortgage originations. But new business was still "under pressure due to strong competition in the mortgage market".
The bank sustained a "small decrease" in the number of current accounts – from 1,431k to 1,425k – which was primarily driven by heightened competition in the market. Balances increased, however.
Why it's interesting
The troubled bank has made progress with improving its brand image, thanks to a new advertising campaign and the launch of a £150 current account switching offer, which went live this month. Its net promoter score has risen from 24 to 28 – the highest since October 2013.
Total operating costs fell 10 per cent in the period, as the turnaround plan continues to take hold. PPI compensation during Q1 2016 was "marginally below forecast".
The update also noted that
As forecasted in the bank's updated plan, accepted by the PRA, the bank does not now meet its Individual Capital Guidance (ICG) and Combined Buffer. As noted in our Annual Report and Accounts, under the PRA rulebook, not meeting the Combined Buffer prevents the bank from creating an obligation to pay variable remuneration during the period of non-compliance. To remain competitive and to enable the attraction and retention of employees, the Bank will need to change its remuneration structure and this is likely to increase costs
What the Co op Bank said
Chief executive Niall Booker said: "During the first quarter of 2016, we have continued to make progress implementing the bank's turnaround plan. Encouragingly, the performance of the core bank continues to improve particularly in terms of mortgage originations. Alongside this, we have seen an increase in our current account NPS scores which further emphasises the consistently strong service levels being delivered in our contact centres and branches alongside continued improvement in our digital channels. Progress has also been made in delivering the IT transformation and resilience required to address the historic underinvestment in systems and processes and to meet threshold conditions.
"Market conditions for asset sales meant that the pace of deleveraging in non-core slowed during the first quarter and macroeconomic conditions remain uncertain which may affect the bank's operating environment during the course of the turnaround plan.
"There is still considerable work ahead; the impact of CRDIV as well as the sheer breadth and complexity of the remediation programme continue to create additional cost pressure and the overall execution of the turnaround plan remains challenging. However, notwithstanding these issues, the achievements outlined above provide confidence that we are gradually developing a more resilient and sustainable bank."
In short
The Co-op Bank is making progress, but there are still plenty of issues to overcome before it is back on track.