Co-op Financial Services posts 6% profit rise
by Gill Montia
Story link: Co-op Financial Services posts 6% profit rise
Co-operative Financial Services (CFS), which owns the Co-op Bank, has reported a 6% increase in pre-tax profit for 2007, to £155 million.
The result reflects a loss of £31.8 million by Co-op Bank, which has been forced to write down half of its £63 million investment in structured investment vehicles (SIVs) managed by Citigroup, HSBC and Bank of Montreal.
CFS chief executive, David Anderson, explained that the bank had begun investing in SIVs in 2005 as part of its balanced treasury portfolio.
SIVs invest in long-term securities, such as mortgages, but are financed through short-term debt.
The credit crunch has effectively ended short-term borrowing by SIVs, eroding long-term returns and reducing the quality of their assets.
Last year, Co-op Bank’s overall bad debt levels fell from £105 million in 2006, to £102 million.
Secured loans showed low default levels but bad debts in corporate lending increased.
The group says it will continue to withdrawn from lending to football clubs, where it has experienced losses in the past.
Co-op Bank has also joined other mortgage lenders in withdrawing its most competitive loans this week, after being overwhelmed by demand from applicants.
Only around 10% of the bank’s funding comes from the wholesale money markets, so it is well placed to ride out the current financial turmoil.
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