Co-op Bank and Capita have very different opinions on the status of a £325m contract to manage mortgage services

Oliver Gill
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After issuing a profit warning and seeing shares slide nearly 30 per cent, FTSE 100 outsourcer Capita has become embroiled in a somewhat embarrassing spat with Co-op bank.

Capita acknowledged in its statement to the market this morning:

We are in a contractual dispute with the Co-op Bank regarding obligations relating to the transformation of services. The ongoing mortgage processing being undertaken by Capita is performing well. However, there is a risk of litigation in respect of the transformation.

Read more: Capita shares have plunged after it issued a profit warning

The dispute relates to a contract to transform Co-op Bank's mortgage servicing operation in the UK. The £325m, 10-year, deal was signed last August and announced and sources close to Capita said that the company had met all the relevant milestones and was waiting for payment.

29 September 2016 @ 3:00pmCapita (CPI)

Nevertheless, Co-op has firmly refuted these comments and said the following:

The Co-operative Bank p.l.c.
29 September 2016
Capita Mortgage Outsourcing Programme

The Co-operative Bank p.l.c. (the "Bank") has noted the comments made today as part of Capita plc's (“Capita”) trading update investor call regarding the mortgage outsourcing contract signed in August 2015.

The risk of delay to delivery of the transformation elements of this project were disclosed in the Bank's 2016 Interim Results.

The Bank strongly refutes Capita's suggestion that they have delivered an element of the transformation programme which the Bank has not paid for. In addition, there are amounts which the Bank regards as owing to it by Capita.

The Bank continues to work through the issues surrounding this transformation programme with Capita. The existing outsourcing of mortgage processing to Capita both for new and existing Bank customers continues to operate in a satisfactory manner and the Bank is committed to ensuring that this remains the case going forward.

The PRA and FCA have been kept fully advised by the Bank of these issues from the outset.

To make matters worse for Capita the revised forecasts could be worse as they assume collection from Co-op. It said in its statement this morning:

This outlook excludes the cost of potential restructuring actions and is subject to the satisfactory resolution of our dispute with the Co-op Bank.

Capita also revealed this morning that it would incur £20m-£25m of one-off costs in relation to a congestion charging contract with Transport for London and that its IT Emergency Enterprises division had taken a £30m hit.

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