Co-op Bank profits slide after rise in redress costs and expenses

28th Feb 2024 13:35

(Sharecast News) - The Co-operative Bank reported an underlying profit of £120.9m in its full-year results on Wednesday, down from £136m year-on-year, with a net interest margin of 180 basis points, making for a 14 basis point increase compared to 2022.

Despite facing exceptional redress costs of £28.9m related to legacy business, alongside strategic transformation and advisory expenses amounting to £22.5m, the bank said it still managed to achieve a statutory profit of £71.4m, sliding from £132.6m year-on-year.

The bank, owned by a number of funds and with its debt securities listed in London, said it was in a strong liquidity position, with the pillar one liquidity coverage ratio (LCR) standing at 195.4%, and a 12-month rolling average LCR of 211.4%.

It also reported resilient customer credit quality, maintaining low accounts greater than three months in arrears.

Additionally, the Co-operative Bank highlighted its intention to start dividend distributions, supported by its robust capital position.

With a common equity tier 1 (CET1) ratio of 20.4%, well above the regulatory minimum, the bank said it remained well-capitalised.

Looking ahead, the bank said it would focus on current accounts and deposits, mortgages, and small-to-medium enterprise (SME) lending in 2024.

The second phase of its strategy, 'embed and expand', aimed to build on the progress made in the prior year, with a renewed emphasis on operating model transformation and ESG and ethical banking propositions.

Its financial outlook for 2024 included a net interest margin of about 185 basis points, total statutory costs of around £410m, and a return on tangible equity of around 10%.

"2023 has been a year of transformation and I am extremely proud of what we have achieved," said chief executive officer Nick Slape.

"The underlying profit before tax of £120.9m reflects our strong, sustainable and low risk business model, while statutory profit before tax of £71.4m was impacted by exceptional redress on legacy mortgage business, strategic transformation and advisor costs.

"We have made significant progress on our IT simplification programme, including successfully in-housing our mortgage servicing capabilities, going live with our new cloud based mortgage platform and completing 67% of our savings migration."

Slape said the bank had made an "excellent start" to 2024.

"We received over 12,500 new current account applications in January, representing an increase of over 300% versus the same period last year.

"New mortgage origination has also been strong with £1.2bn applications in January.

"Looking to the future, whilst the economic outlook remains uncertain, the bank is well positioned with a low risk balance sheet and strong capital and liquidity positions."

Reporting by Josh White for Sharecast.com.