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Update on provisions for conduct risk

21 October 2013

Since the publication of The Co-operative Bank’s unaudited 2013 first half accounts on 29th August 2013, the Bank has been preparing for the announcement of its recapitalisation plan, which may require the Bank to issue certain public documents. These preparations have included significant due diligence as well as continued management actions, including a review of conduct related issues in the light of recent FCA decisions.

Whilst this preparation will be on-going, the Bank has made a re-assessment of certain likely future conduct costs and, as a result, the Bank expects to increase its overall provisions by approximately £100-105 million.

The Bank’s estimates of existing provisions relating to customer redress have been revised, with these revisions relating primarily to a change in assumptions regarding the future costs of PPI redress, arrears charges and the processing of certain mortgage interest “first payments”.  An additional provision has also been made in relation to the cost of customer redress that will be required following the identification of a technical breach of the Consumer Credit Act.

The Prudential Regulation Authority (PRA) has confirmed to the Bank that the previously announced additional Common Equity Tier 1 requirement of £1.5 billion by the end of 2014 remains unchanged.  The impact of this additional provision on the Bank’s forecast capital requirements is materially less than the income statement charge, as an element of likely future conduct risk provisions was already included in the Bank’s capital planning.

As stated in the unaudited first half accounts, assuming £1.0 billion of Common Equity Tier 1 is raised before the end of 2013, the Bank continues to expect the 2013 year-end Common Equity Tier 1 (Basel III) ratio to be below 9% but above the 7% regulatory minimum requirements.

The Bank is continuing to work on the details of its Recapitalisation Plan and expects to announce further information shortly.

Investor Enquiries:

0800 731 2310


Media Enquiries

The Co-operative Group

Russ Brady                           07880 784 442

Tulchan Communications 0207 353 4200

Susanna Voyle

Jonathan Sibun

Cautionary statements

These results contain or incorporate by reference certain "forward‐looking statements" regarding the belief or current expectations of the Bank or the Bank Board (as applicable) about the Bank's financial condition, results of operations and business and the transactions described in these results.  Generally, but not always, words such as "may", "could", "should", "will", "expect", "intend", "estimate", "anticipate", "assume", "believe", "plan", "seek", "continue", "target". "goal", "would" or their negative variations or similar expressions identify forward‐looking statements. Such forward‐looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of the Bank and are difficult to predict, that may cause the actual results, performance, achievements or developments of the Bank or the industries in which they operate to differ materially from any future results, performance, achievements or developments expressed or implied from the forward‐looking statements. A number of material factors could cause actual results to differ materially from those contemplated by the forward‐looking statements.  In particular, the Bank’s business plan is subject to ongoing discussions with the PRA and the recapitalisation plan is subject to finalisation and its implementation is subject to a number of inherent risks.  Risks include a failure by bondholders to participate in the recapitalisation plan, a legal challenge by affected Bank bondholders to the recapitalisation plan and a failure by, or inability of, The Co-operative Group to make its proposed contribution.

Failure to implement the recapitalisation plan may result in regulatory intervention that could reduce or eliminate the value of the equity and modify, reduce or eliminate debt payment obligations and may even result in the Bank no longer being able to continue as a going concern. Even if the recapitalisation plan is successfully implemented, the Bank may, from time to time, require additional capital. Factors which could adversely affect the Bank’s capital position and which may result in additional capital being required include worsening economic or market conditions, continuing deterioration of asset quality, the unavailability or withdrawal of funding, failure to implement the Bank’s restructuring and cost reduction programme, and changes in regulatory capital requirements. Should such factors occur prior to completion of the recapitalisation plan, they might impact the launch or successful implementation of the recapitalisation plan. The Bank’s strategy is also untested and the Bank may ultimately be unsuccessful in implementing its strategy, in particular in reducing its non-core assets in a controlled and capital efficient manner and restructuring its cost base as and within the timeframe currently anticipated. These, and other risks and uncertainties, could, individually or cumulatively, have a material adverse effect on the Bank’s business, results of operation, financial conditions or prospects. The forward-looking statements contained in these results speak only as of the date of these results. 

Neither this document, the publication in which it is contained nor any copy of it may be made or transmitted into the United States of America (including its territories or possessions, any state of the United States of America and the District of Columbia) (the “United States”). Neither this document, the publication in which it is contained nor any copy of it may be taken, transmitted or distributed, directly or indirectly, into Australia, New Zealand, South Africa, Japan, Canada or Switzerland or any jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction. Any failure to comply with this restriction may constitute a violation of securities law in those jurisdictions.  The distribution of this document in other jurisdictions may also be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any shares or any other securities nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefore. The distribution of this document in certain jurisdictions may be restricted by law and persons into whose possession any document or other information referred to herein comes should inform themselves about, and observe, any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

In particular, this document does not constitute an offer for sale of, or a solicitation to purchase or subscribe for, any securities in the United States. No securities of Co-operative Group or Co-operative Bank have been, or will be, registered under the US Securities Act of 1933, as amended (the "Securities Act"), and securities of Co-operative Group or Co-operative Bank may not be offered or sold in the United States absent an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offering of the securities in the United States.

Investors should not make any investment decision regarding any transferable securities to which this document relates except on the basis of information to be contained in the public documentation to be published in due course in connection with the recapitalisation plan.

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