The Co-operative Bank is to invest another £500m in upgrading its IT systems over the next three years as the Co-operative Group cedes control of its troubled bank to US hedge funds.
The news was revealed as the Bank unveiled a rescue plan thrashed out at the weekend with the hedge funds, which acquired the troubled bank's debt as a lever to take it over.
The challenge of putting together a modern IT system in place of the bank's existing patchwork of old IT combined with manual processes was one of the factors that helped push the Co-operative Bank over the edge.
After spending some £250m on a botched new IT infrastructure that was intended to integrated disparate systems following its acquisition of Britannia Building Society in 2009, the Bank alighted on the alternative solution of taking over the 632-branch chunk of Lloyd's Bank that it was being forced to divest following its acquisition of HBOS. This would have come with Lloyd's IT system, which the Bank would have rolled out to its legacy Co-operative Bank and Britannia branches.
To help fund the new IT investment - and to cover the £1.5bn bank needs to raise to increase its dwindling tier-one capital - the Co-operative Group will inject £462m as its share of the £1.5bn rescue plan. The rest of the new financing for the Bank will come from the hedge funds that have acquired a controlling stake in the Bank.
In addition to the IT investment, the Bank also plans to reduce its 324-estate of branches, the majority of which operate as the Britannia Building Society, which it took over in 2009. The Bank's 9,000-member workforce will also be reduced with up to 1,000 redundancies.
The Co-operative Bank's financial troubles were exposed on 24 April 2013 when it gave up its planned acquisition of Lloyds' branches. That followed a drastic six-notch downgrade of Co-operative Bank's credit rating by Moody's, which highlighted both sustained losses on the corporate loan book that came with the Britannia acquisition, as well as losses caused by the need to refund people mis-sold payment protection insurance.
That came after the Bank had reported a financial loss of £634m in the financial year to the end of March.
Under the rescue plan thrashed out this weekend with hedge funds, who had acquired the troubled bank's debt as a lever to take it over, the Co-operative Group will see its share in the bank reduced to 30 per cent.
The Bank will eventually be floated on the London Stock Exchange after it has been whipped into shape. Even so, it could take five years before the Co-operative Bank returns to profit.