Hundreds of jobs may be shed at the Co-operative Bank as the bank attempts to raise the £1.5 billion it needs to plug the hole in its finances.
The bank is expected to announce cost-cutting plans after receiving strong opposition from existing bondholders on its plan to list shares on the stock market.
Bosses at the Co-op agreed a ‘bail in’ with regulators last month, which meant asking existing retail investors to accept new lower-yielding bonds along with shares.
But with the bank preparing its half-year figures, which will show precariously low capital reserves as a result of its toxic debts, there will be renewed emphasis on the need to claw back its £1.5 billion capital shortfall.
The bank may seek to reduce or axe completely its corporate division as it looks to reduce its annual expenditure of well over half a billion. But any cost-costing restructure is likely to strike heavily at the bank’s 10,000-strong workforce.
The Co-operative Bank's independent review into its capital shortfall will begin in September.
Independent Review
Parent company, the Co-operative Group, said that it had launched an independent review into the events that caused the capital shortfall at its bank.
The review will be chaired by Sir Christopher Kelly, chair of the King’s Fund and formerly of the Financial Ombudsman Service.
The bank’s problems have largely been attributed to an ill-fated merger with the Britannia Building Society in 2009, during which it acquired a volume of bad commercial property loans.
The review will probe this merger, as well as the failed ‘Project Verde’, which saw the bank lined up as preferred bidders for 632 branches that Lloyds were required to sell.
It will also investigate the role of independent auditors, which failed to highlight any problems despite a swelling black hole in its finances.
The review could make life difficult for the chairman of the Financial Conduct Authority, John Griffith-Jones, who is facing calls to resign after presiding over the accounting team at KPMG - the Co-op's auditors - during the years when the bank's problems were overlooked.
The FCA was forced to defend its chairman in April after it emerged that his auditing team at KPMG had also failed to find problems at HBOS prior to its collapse in 2008 (read more).
Keith McDonald
Which4U Editor
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