THE AUDITORS of the Co-op Bank have confirmed that the stricken lender will be unable to continue as a going concern if it fails to secure an emergency injection of capital.
In notes to the bank’s interim accounts, in which it announced a pre-tax loss of £709m for the first half of 2013, auditors KPMG warned of “significant doubt” over its ability to remain a going concern if it is unable to agree a £1.5bn rescue plan with its bondholders.
Parent company the Co-Operative Group is planning to launch a £1bn exchange offer later this year, which will require bondholders to contribute £500m as their holdings are converted into shares in the bank, which will list on the stock market. A further £500m is expected to be funded through the sale of the Co-op’s insurance business.
However, KPMG said there are “material uncertainties” that the rescue plan will go through.
The bank suffered a £496m impairment charge on its loans, largely stemming from its takeover of Britannia Building Society in 2009. It was also hit with a £148.4m write-down on its IT assets.
Niall Booker, who joined as chief executive of the Co-op Bank in June, warned there are a “number of hurdles to be overcome” to secure the bank’s survival.
“The immediate priority…is on improving the capital position of the bank through the successful execution of our recapitalisation plan,” Booker said, adding that the exchange offer was “critical to stabilising the bank’s position”.
“The directors consider the bank a going concern on the success of the recapitalisation plan,” Booker said.
Richard Pennycook, the highly-regarded turnaround specialist and former Morrisons finance director, was appointed FD at the Co-op Group in June.
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