Co-Op Bank - "Situation Perilous" says the banks Chairman.

[CliveH]

Co-op Group hit by huge banking losses

 

29 Aug 2013 | 07:35

 

Nick Paler - Investment Week

 

Categories: Investment | Economics / Markets Topics: Co-operative bank | Britannia

 

The Co-operative Group has reported more than half a billion pounds worth of losses in the first half, after sizeable write-offs at its troubled banking arm.

 

Reporting its results for the first half, the group said it had lost £559m in the six months to end of June, having written off £496m of bad loans at Co-op Bank.

 

Including the write-downs, Co-op Bank alone reported a total loss of £709m before tax, compared to a loss of £58.6m the previous half year. The Co-op Group's food and other businesses reported profits which offset the loss a little.

 

The bad loans relate mostly to Britannia Building Society, which merged with Co-op Bank in 2009.

The bank has faced pressure from regulators to strengthen its balance sheet after revealing earlier this year it had a £1.5bn capital shortfall, and is planning on disposing assets and tapping bond holders to plug the gap.

 

However, its situation is perilous, as the bank's chairman Richard Pym identified.

 

He said both the Co-operative Group and holders of the bank's subordinated capital securities will contribute broadly equal amounts to generate £1bn of the total additional £1.5bn core capital required to secure the Bank's future.

 

"In addition, in 2014, contingent on a successful exchange offer, the Co-operative Group will contribute up to a further £0.5bn expected to be funded primarily through the sale of its insurance businesses. The execution of the Exchange Offer is vital to stabilising the Bank's capital position; indeed, we will not remain a going concern without it."

 

He said the group expects to announce further details in the fourth quarter.

 

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I would suggest extreme caution. Anyone who has more than £85K should be very wary. And do note that "Smile" and "Britannia" are part of the Co-op group.

 

 

 

 

[pepe63xnotuse]

I'm not pretending to understand half(at best!) of what gets posted about banks etc, on here...

...but it doesn't seem that long ago that the likes of the more "ethical" banks(like the Co-op),were seen as an option to the so called "casino banking" of the mainstream banks, does it...

 

..we don't appear to be left with many safe/dependable options...? :-S

 

..the words "shoebox"..."mattress"..and "spend it"...spring to mind..... (lol)

[CliveH]

Wise words me thinks Pepe.

 

And yes - the dear old Co-Op was one of those banks we used to recommend if someone wanted an ethical bank.

 

It seems that their taking over Britannia was their downfall.

 

 

I can still remember that "chill" that came over me when our techies emailed us in 2008 to say that we should be cautious in placing client money in "Safe haven bank deposit accounts" whilst the then financial storm raged. (It is standard procedure for cautious clients to move a significant proportion of their portfolio to cash if equities come under pressure) Their advice was that with the then investor protection only being at £35K that as it was likely that two UK banks would fail, there would be MORE safety in staying in equities!

 

I can remember thinking "Just how big is this problem??"

 

Sadly we found out.

 

And the ripples are still there in the pond.

 

 

[Guest Peter James]

Patrick Mercer MP MBE showed how easy it is to hire Tory politicians (he said Labour politicians were more difficult) even for a Fijian Dictator with an appalling human rights record. So I don't suppose the Banksters have any trouble.

But I would guess the Co op is too ethical to hire politicians, so they may well be allowed to fail.

[Dave225]

Peter James - 2013-08-29 6:46 PM

 

Patrick Mercer MP MBE showed how easy it is to hire Tory politicians (he said Labour politicians were more difficult) even for a Fijian Dictator with an appalling human rights record. So I don't suppose the Banksters have any trouble.

But I would guess the Co op is too ethical to hire politicians, so they may well be allowed to fail.

 

Wrong...... they have Ed Balls on their books plus a few of his cronies. He is very familiarr with failing enterprises as after all he was a bag man for Gordon brown and created the mess.

[Dave225]

I am as usual very cynical when I read some of this. We have heard of many institutions having problems because of 'bad loans' and 'toxic debts' Right offs appear on the books and much wailing is made by all but..........................we never actually see what the toxic loans actually are. HBOS went down evidently because it loaned to commercial Companies who could not pay back, but no names were ever given apart from one or 2 that slipped out, Tenghuiz (if I spelled it right) was one and even Green of Topshop fame was another. Who were all the others? One does wonder what the real situation is.

 

 

Yes presumably Britannia loaned money out and presumably they do not expect to get it back, but give us the details. If they gave a mortgage of 120% which seems to be a common cause then they have presumably lost 20%. If the banks are stupid enough to then sell the property at a huge discount then they themselves are making the loss, which should be criminal. Some shark buys the properties cheap and then re sells at a huge profit. The shark is probably an ex banker.

 

The Coop must have done due diligence before buying the BS...............................or did they? In which case a few execs should be facing jail terms not bonuses. Did Britannia lie and if so then they should be facing justice as well. I also have the suspicion that in a few years time all these 'toxic loans' will have miraculously become profitable, time for more bonuses all round.

[CliveH]

It is - or was - about how debt was "packaged" Dave.

 

It is also about gearing where you strutter the amount of loan to the amount of reserves you call on.

 

Northern Rock for example geared itself to loan circa 1.3 times the money it held on deposit. It did this by buying US debt that the then FSA was stupid enough to accept as being normal "Re-insurance" of the liability.

 

So Fanny Mae and Freddie Mac in the US lent money at, say 4% so Northern Rock said - we will help you with that and so "bought" into that debt so that they received a regular "income" from the interest payments.

 

On the face of it - it looked fine - because no one had picked up that the people lent two were just a couple of pay cheques away from default.

 

PLUS the fact that in the US - there is no such thing as negative equity for borrowers - if you cannot make your mortgage payments - you simply hand the keys back and walk away - whereas here in the UK - you would still owe any balance.

 

So Northern Rock thought it had a "secured debt" but it was secured on the value of retail housing the value of which had gone through the floor.

 

Now in my book the FSA should have been aware that such gearing was dangerous.

 

In contrast the Nationwide BS only allows itself to lend 80% of the assets it holds.

 

Whilst Britannia BS was never "a Norther Rock" it was caught up in the flack and it's business premis was weak.

 

And the FSA was asleep at the wheel.