Co-operative Bank returns to operating profit for first time in five years but heavy IT costs leads to overall loss
The Co-operative Bank returned to operating profit last year for the first time since 2013 but heavy IT costs and PPI payments led to the bank to widen overall losses.
The bank said the return to profit was a “key milestone” as it continues to recovery from a restructuring in 2017 but warned of challenges ahead amid political and economic uncertainty.
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Its annual report also revealed a £1.125m severance payment for one employee, understood to be former chief executive Liam Coleman, who resigned last year.
Operating profit rose to £14.9m in 2018, a significant increase on a loss of £84m the previous year.
But pre-tax losses increased by £400,000 to £140.7m driven by its IT separation from former parent company Co-operative Group, which cost the bank £112.9m.
It also paid £31.7m in compensation to customers for mis-sold PPI, above the previous year’s £27.4m.
Chief executive Andrew Bester told Morning Wire the bank had returned to "good health" and laid a foundation for future growth.
He said: “The backdrop of political uncertainty and intense competition has created an extremely challenging banking environment but, despite this, we have made sizeable progress in the bank’s transformation this year, reaching a key milestone by recording an operating profit for the first time since 2013.”
He added: “While our ongoing investment in transformation means continued losses overall, this is nevertheless an important step towards achieving our goal of sustainable profitability.”
The bank pledged to grow its SME base in 2019, despite missing out on a slice of the RBS competition fund, awarded instead to rivals Metro, Starling and ClearBank.
Bester said he was “disappointed” but respected the decision and was still confident in its offering for businesses.
As a UK-focused bank, Lloyds said it anticipated the impact of Brexit on its day-to-day operations would be limited, echoing the sentiments of Lloyds Bank earlier this month.
Bester said there had been “no appreciable change in our customers’ behaviour” but the bank would continue to monitor the situation closely.
The bank increased its mortgage lending by £1.4bn after enjoying its highest year for mortgage completions since 2010.
Five US hedge funds agreed a £700m rescue plan for the bank in 2017 after the lender reached the brink of collapse.
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Bester, who was appointed in July as the bank's fifth chief executive in seven years, said Co-operative Bank has overcome “significant difficulties” and had a foundation to build for the future.
The bank missed out on the first round of an RBS fund designed to boost competition, but hoped its inclusion in an incentivised switching scheme would boost its business customer base in 2019.