TROUBLED LENDER the Co-operative Bank was plunged deeper into crisis today after it revealed it needs to raise another £400m of capital following the discovery of additional costs related to past misconduct and poor legal documentation issues.
The bank, which completed a £1.5bn recapitalisation only three months ago, said the capital raise would take the form of a rights issue, while the discovery of the costs would push it into an underlying pre-tax loss of £1.2bn-£1.3bn for last year.
The biggest contributor to the costs relate to the mis-selling of consumer products and breaches of the Consumer Credit Act. In addition, one-off costs associated with the bank's separation from the Co-operative Group proved more costly than expected.
It also warned that its tier one capital ratio would drop to 7.2%, only just above the regulatory minimum of 7% and well below its previous guidance of 9%.
"The starting capital position of the bank for the four to five year recovery period is weaker than in the plan announced last year. The proposed capital raise would enable us to reset this starting point and continue with the execution of our original business plan," said chief executive Niall Booker.
"We have started to simplify the business, reduce costs and de-risk assets as we drive the change needed to return to our roots as a Bank focused on our retail and SME customers. However, there remain significant challenges ahead."
Booker, the former head of HSBC's North American operations, was brought in to lead the bank last year after a £1.5bn black hole forced the lender into rescue plan that saw the Co-op Group's stake in the bank cut to 30%.
Earlier this month, Co-op Group chief financial officer Richard Pennycook took over as interim boss of the mutual after its chief executive Euan Sutherland quit amid claims the organisation's board had become ungovernable.
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