Co-Operative Group Slumps To £132m Loss After Bank Stake Write-Off

Co-Operative Group Slumps To £132m Loss After Bank Stake Write-Off

The Co-operative Group has fallen into the red for the first time since 2013 after writing off the value of its stake in the troubled Co-operative Bank.

The mutual revealed pre-tax losses of £132 million for 2016 as it took a £185 million hit after slashing the value of its 20% holding in the Co-operative Bank to zero.

The Co-operative Bank has been put up for sale amid concerns over its balance sheet strength as it continues to suffer following its 2013 rescue after the discovery of a £1.5 billion black hole in its finances, which left it majority controlled by US hedge funds.

Losses at the Co-op Group come against profits of £23 million in 2015 and mark the first time it has fallen back into the red for three years, when it was plunged into crisis as the full scale of the woes at the banking business emerged.

It said the move to write off its stake in the Co-op Bank was a "prudent valuation" amid "volatility" caused by the ongoing sale process.

The group had already marked down the value of the shareholding to £140 million at its half-year results, from £185 million in 2015.

But it said the hit would not disrupt its overhaul of the mutual and investment plans.

On an underlying basis, pre-tax profits fell to £59 million from £81 million in 2015.

Steve Murrells, group chief executive of the Co-op, said: "We've made great progress in rebuilding our Co-op, with all our businesses delivering strong performances.

"While much remains to be done, our rebuild plans have really started to deliver value for our customers, our members and their communities."

But the group gave a cautious outlook for the year ahead despite a solid year for its three main businesses - convenience stores, funeralcare and insurance.

It warned: "All of our markets remain fiercely competitive and we face a challenging consumer and economic backdrop."

On the bank stake write-off, the Co-op Group said: "Given that the bank is in a sale process, the consideration to be received for our share is obviously volatile and potentially has a large range of options and we believe this is a prudent valuation.

"We are supportive of the process the bank is going through to find a secure home for members who use their services."

It is understood the deadline for initial expressions of interest in the Co-op Bank was earlier this week, with potential bidders said to include Sir Richard Branson's Virgin Money and Clydesdale and Yorkshire banking brands owner CYBG.

But it is thought the sale - set to save the lender from raising up to £750 million or being wound down - is likely to see bidders snap up parts of the bank rather than the whole business.

The bank posted its fifth year of losses last month, falling into the red by £477.1 million in 2016.

Aside from the difficulties at the bank, the Co-op Group had an "exceptional year", according to chairman Allan Leighton.

He said 2016 was also "momentous" for the group as it finished its second year of a major turnaround plan launched in the wake of its troubles in 2013.

It has since had a complete governance overhaul and sold off businesses - such as its farms and pharmacy operations - to invest in its main divisions.

The group has also had a change in leadership, with former Asda boss Mr Leighton becoming its first independent none-executive chairman in 2015.

Mr Murrells, previously head of the Co-op food business, took over from Richard Pennycook at the helm on March 1.

The group's annual results showed the convenience store arm notched up a 3.5% rise in like-for-like sales, although underlying operating profits slipped 2% to £182 million as it invested in the chain.

It spent £85 million on shop refits, £88 million on new stores and invested in an increase in staff pay and changes to its food range.

The group sold or closed 141 stores, opened 112 new outlets and is offloading another 298 shops to McColl's Retail this year.

Underlying earnings were flat at its funeralcare business, at £69 million, after it also invested in the division, while revenues rose 3% to £307 million.

It narrowed losses in its insurance arm, to £18 million from £60 million in 2015 thanks to a 28% surge in sales.