The troubled Co-operative Bank has warned it will remain in the red until at least 2017 as losses widened significantly to £204.2 million in the first half of the year.
Half-year losses were far higher than the £77 million reported a year earlier as the bank counted the cost of moves to put it on the road to recovery, and said it would continue to see losses throughout 2015 and at least 2016.
But the Co-operative insisted the performance of the core business had begun to stabilise as it halted the exodus of current account holders, and added that mortgage lending was recovering.
The figures come after a damning official report last week found the Co-operative Bank misled investors and kept regulators in the dark as it came close to collapse.
The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) concluded there were serious failings in the way the lender was run from July 2009 to December 2013, but spared the bank a potential £120 million fine after taking into account the state of its balance sheet.
Despite the widened losses, Co-op Bank chief executive Niall Booker said the bank’s turnaround was on course, with the lender now in better shape to withstand stresses in the wider economy.
He added: “Although the core bank remains work in progress, its performance is also beginning to improve as we increase efficiency, continue to re-invest in the brand and work with customers to offer competitive products that meet their needs.
“Of course, we have always said that addressing legacy issues will continue to dominate financial performance for some time and there is considerable work ahead towards a full recovery.”
The numbers of current account holders quitting the business has reduced markedly from the 62,646 who left in the first half of 2014 on a net basis, although the Co-op revealed that it still saw a net 2,250 leave in the six months to the end of June.
The Co-op also revealed the extent of the turnaround at the group as it continues to shed branches and staff, with transactions at its branches down 28% year-on-year after slashing its network from 227 a year ago to 165.
Staff numbers have also been reduced “accordingly”, the Co-op said, although it has been looking to transfer staff where possible as it has outsourced some of its back office business.
The Co-operative nearly collapsed two years ago after a £1.5 billion black hole was discovered in its balance sheet.
It had to be rescued by bondholders including US hedge funds in a move which saw the wider Co-op group’s ownership of the bank reduced to a 20% stake.
The lender is now rebuilding its balance sheet after it failed a Bank of England stress test last year, while also getting its IT systems up to scratch.
Much of the £1.5 billion hole uncovered in 2013 was linked to losses on commercial property loans stemming from its ill-fated merger in 2009 with the Britannia building society.
Mr Booker said the group’s half-year results were “slightly better” than it expected, adding that legacy issues should not detract from the progress the group is making.
He said that the recent findings of the PRA and FCA were a “reminder for all our stakeholders of the scale of the challenges we face, but how far we’ve come since June 2013”.
The bank’s half-year results were impacted by losses of £38.2 million on sales of assets to lower its debt levels and costs of its turnaround.
It also put by another £49 million to cover potential compensation claims and legal charges, such as packaged accounts and issues relating to the consumer credit act. This was up from £38.6 million a year earlier.
Bosses at the bank signalled the potential for a future merger with another challenger bank in the market, saying it had “talked to people from time to time”.
In terms of a possible stock market listing, Mr Booker said the bank would need to have a stronger balance sheet before floating.