‘Hurricane of bad publicity’ too much for Co-op Bank customers

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THE troubled Co-operative Bank suffered a customer exodus amid a “hurricane of negative publicity” as 38,000 current account holders left in the first half of 2014 following its near-collapse last year.

Results for the period show the lender narrowed losses to £75.8m compared with £844.6m for the same period in 2013 – but the toxic legacy of its recent woes saw many customers depart.

Chief executive Niall Booker maintained the bank was in a much stronger position today, after it cut costs by shedding branches and slashing nearly 900 jobs, and beefed up its balance sheet, most recently with a £400m capital raising in May.

He added: “Considering the scale of the challenge we faced a year ago, we are encouraged by the progress made to ensure the stability of the bank.”

But it lost a net 28,199 current account customers during the first six months of this year, with the departure of around 38,000 partly made up for by 9,700 new customers. The net loss amounted to two per cent of the total.

Mr Booker said: “Considering the amount of time that we spent receiving negative publicity during the first and second quarters, I think the reduction is not significant and probably less than we would have expected. The loss of any customer is a mortal wound to somebody like me who has been in the industry for a long period of time. I don’t think it is a bad outcome but I certainly don’t want to appear complacent about it.”

It came during a period when the lender reported a full-year loss of £1.3bn, and the wider Co-operative Group announced that it had plunged £2.5bn into the red for 2013, largely due to the bank’s woes.

Meanwhile, a scathing report by former Treasury mandarin Sir Christopher Kelly blamed the bank’s near-collapse – after a £1.5bn hole was discovered in its balance sheet – on a “sorry story” of multiple management failures.

The disastrous period saw it having to be rescued in a deal which led to the wider Co-op group’s stake in the lender shrinking from 100 per cent to 20 per cent as it ceded majority ownership to bondholders including US hedge funds.

Mr Booker said the “hurricane of negative publicity” had hit plans for an account switching campaign, which the bank now plans to restart as it aims “to stem the outflow and turn the tide” of current account losses, and that the trend had recently slowed.

He told customers who had stuck by the bank that their “continuing loyalty is deeply appreciated” and reiterated its commitment to ethical values, following the change in its ownership structure.

The Kelly report painted a picture of the bank’s culture in which an “acceptance of mediocrity” took hold. It noted Methodist minister Paul Flowers had been appointed chairman in 2010 despite being “an individual who manifestly did not have the appropriate experience”. He left last year and was later caught up in a drugs scandal. His replacement, former Alliance & Leicester boss Richard Pym, is leaving the board in October when former Lloyds and AXA executive Dennis Holt will become interim chairman.

Flowers, who is also a former Bradford councillor and led the Co-operative bank for three years, was caught buying and using illegal drugs including crystal meth, crack cocaine and ketamine.

He pleaded guilty before Leeds magistrates in May to two counts of possession of class A drugs and one count of possession of ketamine, a class C drug.

He was fined £400 and ordered to pay £125 in costs.