Profit slips at the Co-op Bank as Coventry Building Society continues to circle
Despite seeing an increase in net interest income, thanks to higher interest rates, the bank saw costs increase significantly which dented its bottom line.
Rising costs hit the Co-op Bank’s profit in 2023 as the lender confirmed that takeover talks with Coventry Building Society “remain ongoing.”
Pretax profit fell from £132.6m to £71.4m in 2023, although much of this reflected costs related to the potential takeover as well as “exceptional redress on legacy mortgage business.”
On an underlying basis, pretax profit was £120.9m, compared to £136m the year before.
Staff costs rose by 21 per cent due to internal investment and “inflationary pay rises.” All this meant the bank’s cost-to-income ratio increased to 86.1 per cent from 72.8 per cent last year.
However, the bank said its credit quality remained “robust” and impairments were down to just £600,000 from over £6m last year.
Nick Slape, chief executive, said: “2023 has been a year of transformation and I am extremely proud of what we have achieved.”
The results come after the Co-op Bank confirmed late last year that it had entered exclusive talks with Coventry Building Society about the possibility of a merger.
According to reports, Coventry Building Society submitted a bid for Co-op in December which valued the bank at £700m.
” These discussions remain ongoing as we continue to evaluate the merits of the combination,” Slape said.
Following the results, the bank announced an inaugural ordinary dividend of 0.13p per share reflecting the bank’s “increased capital strength and sustainable profitability.”
It aims to continue shareholder distributions “when appropriate.”
The company is owned by a collection of private equity investors and hedge funds including GoldenTree Asset Management and BlueMountain Capital, which took control of the group after its struggles with debt.
A merger with Coventry would take the lender back to mutual ownership.
Looking into 2024 the Co-op Bank expects a net interest margin of 185bps, up from 180bps this year, and a return on tangible equity of around 10 per cent.
