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Jolted Co-op Bank looking at 2 more years of losses


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Jolted Co-op Bank looking at 2 more years of losses

full-year 2015 losses onApril 1 and announced that 2016 will also end in the red for the troubledlender, dashing hopes of a return to markets in the near term.

Attributablelosses for the year ran up to £623.3 million, compared to £226.6 million in2014, partly due to conduct charges of £193.7 million. CEO Niall Booker, whose effortsto reduce risk-weighted assets and cut losses in the core business have wonplaudits, said that before an IPO can be considered seriously, the bank"needs to be a bit closer to profitability," according to the Financial Times. He said the core businessmight turn profitable by 2017-end.

EvaOlsson, a credit analyst at Mitsubishi UFJ Securities in New York, said thatalthough restructuring the bank's loan book is a difficult task, the 2018target for returning to profitability sounded realistic.

However,Olsson said that "continuous missteps clearly put pressure on themanagement" and wonders how much longer shareholders will tolerate theprotracted reform.

"Theyhad a very substantial loss again, and up to 2018 there are likely to be twomore years of losses," she said.

Meanwhilethe Co-op Bank's capital adequacy remains a concern. The bank obtained anextension for fixing its capital after failing the Bank of England stresstests, prompting suspicions of regulatory favoritism. "The U.K.government wants to have the bank in the market, which is why for now the samerules don't apply to [the Co-op bank] as for the others," Olsson said.

Mostother U.K. banks must fill the new requirements by 2019.

Lossesin the core banking operations shrank to £14.9 million from £78.6 million,while RWAs were reduced to £7.4 billion from £12.6 billion after significantasset selloffs. Net interest income declined to £299.2 million in 2015 from£358.0 million in 2014; net fee and commission income fell to £71.8 million from£122.4 million.

Otherexperts are skeptical that Co-op Bank's future is as rosy as they might behope, fearing that it has fallen too far behind. "The events of the lastfew years have tarnished [the bank's] reputation and put off customerspreviously attracted by its history and ethical banking policy,"Christopher Wheeler, an analyst at Atlantic Equities in London, reportedly toldBBC News. "It needs to have something else to offer to bring in meaningfulreturns in the future."

LegacyIT problems, serial misconduct, an executive's drug scandal that Britishtabloids have not tired of reporting about, and a £1.5 billion capital holefound in 2013 are only some of the Co-op's haunting problems that need Booker'sattention.

Hiscontract expires at the end of 2016 and the board has yet to find areplacement. Former Santander UKPlc CFO Stephen Jones reportedly declined the post.