Of Special Interest
26th August 2011
CFS negligible profit UK Co-op bank loss
Co-operative Financial Services net profit was £2.6m (€3.0m $4.3m ¥328m Y27.3m) DOWN from £28.2m in the year ago period. The bank prefers to highlight a measure of profit "before significant items" amounting to £94.3m, up from £44.1m a year ago. The Co-operative Bank made a £11.1m (€12.7m $18.3m ¥1,399m Y116.7m) net attributable LOSS for the year compared with a £16.8m profit in the year ago period.
The largest significant item is £90m set aside for Payment Protection Insurance compensation. The PPI item can be argued is a true exceptional item, leaving aside the issue of the bank's selling methods of the product, the expense was not one of choice. Therefore to make the point of the profit including and excluding the item is not unreasonable - but you have to go to P7 of the report to find the statutory profit which is not so reasonable. Most of the other significant items amounting to £34.7m before tax were the result of a management decisions and according to the company relate to investment and integration in the business. To try and discount these expenses from the bottom line and yet be happy to include the profit as a result of the expenditure in this and later years accounts is a more questionable approach to accounting.
The true profit underlines that the bank is not in a position to build up reserves from profit and therefore remains in a weak position should more 'significant items' occur in the future. It also begs questions as to its bid for Lloyds Bank branches, even accepting that CFS has the power of the wider co-operative movement behind it.