THE Co-op Bank issued an apology for its past failings yesterday as it racked up losses of £1.3bn and warned a return to the black was unlikely before 2016.
Niall Booker, who became chief executive in June, said the bank still had “significant issues” to resolve, having come close to collapse last year following the discovery of a £1.5bn hole in its balance sheet.
It emerged that Mr Booker will be paid up to £2.9m this year to lead the turnaround plan, on top of the £1.7m he has already received.
The potential sum of £4.6m for 18 months’ work is near to the £5m in deferred bonus payments that Co-op Bank said it plans to withhold from former directors who were at the institution prior to its demise.
The bank has around 250,000 customers in Yorkshire. It has been at the heart of the wider group’s difficulties, in a year that also saw a drugs investigation involving former bank chairman Paul Flowers.
Despite the turmoil, Mr Booker said customers stayed loyal to the bank last year, with the number of current accounts up slightly to 664,775 and retail deposits down by less than one per cent at £27.9bn.
He said: “We appreciate that customers and other stakeholders continue to feel angry about how past failings placed the future of the business so seriously at risk.
“I would like to apologise to them, to thank them for their continued loyalty and to thank colleagues for their commitment during such difficult times.”
The Co-op Group now owns 30 per cent of the bank, after a rescue that saw control handed to bondholders in a move which avoided the need for a taxpayer bailout. However, the bank still needs another £400m from shareholders in order to cover additional legacy issues, such as the cost of PPI redress.
If the wider Co-op Group, which is still the largest shareholder in the bank, chooses not to take part in the proposed fundraising it will see its own interest in the business shrink again.
Mr Booker, a former HSBC executive, said he was “very confident” the bank will secure the funds, even if the Co-op Group does not participate in the cash call.
The loss of £1.3bn reflects the scale of the bank’s bad assets, such as those acquired from its ill-fated takeover of the Britannia building society, as well as conduct and legal risks of £412m.
Mr Booker warned that the bank will also make losses for this year and 2015.
The Co-op Bank revealed that 1,000 staff - equivalent to 14 per cent of headcount - left the business last year.
Mr Booker, who has pledged to stay with the bank until its position stabilises, said he had made sure that a significant proportion of his remuneration was tied to the improved performance of the bank.
It emerged in the annual report that Mr Booker was paid £1.7m last year, including £943,000 as a fixed allowance “that takes account of the broad range of specialist skills required of the role”.
The allowance is equivalent to £140,000 per month and is payable quarterly up until June 2015, the Co-op said.
The £5m of withheld payments from former directors and senior executives relate to performance targets which have not been met, as well as from some of the legacy issues at the bank.
Iain Clacher, an associate professor at Leeds University Business School, said yesterday: “Given everything that is going on at the Co-op Bank, clearly some people will think about switching to other banks, and possibly other ethical banks.
“However, that creates a problem. The alternatives are either small and niche, or incomplete. The Co-op is also still showing ethical behaviour, because it is not paying management bonuses, given the failures.”