Increased fears about credit squeeze as Co-op Bank’s profits fall

The Co-operative Bank announced earlier this week that it was withdrawing its two-year mortgage deals. It followed announcements that other lenders were scrapping cheap mortgage offers.

However, now the bank has fallen victim to the credit crunch with profits collapsing almost £26 million to £50.3 million due to a £31.8 million write-down on the value of structured investments hit by the financial crisis.

The news was a surprise to many who see the bank as one of the most risk-averse in the UK.

A spokesperson for the bank said our funding is overwhelmingly from retail and corporate deposits rather than from the financial markets and our reliance on wholesale funding is lower than most other banks. The quality of our mortgage book remains high and we have continued to reduce our exposure to unsecured assets.

The bank results are now incorporated into the larger Co-operative Financial Services which said profits increased 6.3% to £155 million with a bid rise in insurance profits despite its suffering £37.9 million of claims from last summer’s floods.

David Anderson, chief executive, said the trading performance was satisfactory in ‘challenging conditions’.

Billionaire investor George Soros recently said that the current financial crisis is the worst since the Great Depression and believes the situation will deteriorate. He also forecasts that while stocks are likely to rebound from recent falls, they will crash further this year.

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