Co-operative Bank today said legacy issues and low interest rates had dragged on performance and prompted the lender's owners to put the bank up for sale.
Although the bank reduced annual losses of £477m from £611m in 2015, it took a further £60m hit from its merger with Britannia Building Society and was slapped with an £82m charge following its public spat with outsourcing giant Capita.
Net interest income fell from £472m to £395m in 2016.
"Conduct and risk charges" were a fraction of the 2015, standing at £25m, compared with £169m. The bulk of Co-op's charges relate to PPI settlements.
Remediation and strategic project costs increased to £275.6m from £216.2m. This included £81.9m expensed in connection with a mortgage outsourcing programme.
Total operating costs reduced by £47.1m to £444.8m following headcount reductions (employees including contractors fell from 4,704 to 3,895), re-jigging its branch network and lowering third party costs.
Operating staff costs fell by £30.3m to £187.7m and Co-op Bank closed 59 branches leaving the lender with 105 branches.
Why it's interesting
Co-op Bank put itself up for sale at the start of February, a move that prompted a flurry of questioning and more recently questions of an impending pensions headache.
The latest concern is that a £400m pension deficit could put pay to current shareholders – a group of mainly US hedge funds including Aurelius, Silverpoint and Monarch – realising any returns on their investments.
However, sources close to the firm indicated that the £400m figure is closer to the actuarial "buyout" deficit – effectively what would need to be paid to plug the gap if the scheme was to be offloaded immediately as opposed to run off over decades to come.
The Manchester-based bank stressed it was wrapping up its PPI problems and getting operating costs under control by reducing headcount and branches.
Co-op will hope the increased costs of the Britannia merger won't grow again this year.
Another thing it will hope doesn't repeat itself is the costly spat over an outsourcing arrangement with Capita. This cost the firm £82m in 2016, of which it wrote off £49m of "assets no longer expected to be in use" – in other words the software Capita was half way through building that Co-op Bank felt wasn't worth continuing to develop.
What the company said
Chief executive Liam Coleman said:
"In 2016, we continued to deliver significant progress against our turnaround plan rebuilding a customer focused retail bank with strong levels of new mortgage business, growing current account numbers and a distinctive ethical brand; but at the same time we faced a number of challenges.
The historically low interest rate environment, legacy issues and the cost of the scale of transformation required continued to impact on the performance of the business.
Today's results reflect those factors, which led to the board's decision to commence a sale process and to look at other options of building capital, and they also demonstrate there is clear potential to build our unique franchise in the future.
"Since 2013 considerable progress has been made fixing the problems of the past and the Bank is now in a very different position than it was in 2013 and stronger in many areas.
"The announcement of a sale and consideration of other options to build capital is therefore about how the bank sees through the next stage of its turnaround plan.
"Obviously, we are only a few weeks into the sale process but we are pleased with the interest to date and engaging with potential bidders as planned."