Mis-Selling PPI: Co-operative Bank Boosts Compensation Pot By £100m

Troubled British lender Co-Operative Bank is boosting its mis-sold payment protection insurance compensation pot by £100m following revised expectations on redress payouts.

According to a statement by the Co-Op Bank, the extra compensation provisions will not affect the amount it needs to boost its balance sheet by, after regulators found a £1.5bn (€1.8bn, $2.4bn) capital black hole in its finances.

The Co-Op Bank is one of UK's smallest lenders with 6.5 million customers and a 1.5% share of the current account market. However it is a household name in Britain, as the wider group includes supermarkets, funeral services and pharmacies.

The bank racked up huge losses on commercial property during the financial downturn and is currently undergoing a major restructuring to avoid government bailout.

In June this year, Moody's slashed the bank's debt rating to junk status, due to concerns that the Co-operative Bank has a black hole in its balance sheet.

Responding to the downgrade, the bank acknowledged that it needed to strengthen its capital position in the light of the broader economic downturn and the pending introduction of additional regulatory requirements.

Later that month, the Co-Op Bank said bondholders must convert their debt to shares before it would inject £1bn pounds of capital and retain a majority stake before the bank is floated on the stock market.

Change of Guard

Following the dire rating's agency assessment, Barry Tootell stepped down as CEO, however former HSBC banker Niall Booker has since taken over as leader.

The Co-Op Bank's newly appointed Chairman Richard Pym runs a bailed-out banking division for the government.

The Co-Op Group also announced its new finance director for its troubled banking arm, Richard Pennycook.

Pennycook is the finance director of the supermarket chain Morrisons.

PPI Mis-Selling Scandal

Banks have so far set aside £16bn to deal with mis-sold PPI. It has not become the most expensive consumer scandal in British history.

PPI was originally designed to provide loan repayment cover, should the customer fall ill, lose their job or have an accident.

However, millions of customers complained after saying that they never wanted or needed the policy in the first place.

According to Financial Conduct Authority data, the issue of PPI raked in the most complaints for banks between January and June 2013.

Some 1,786,626 complaints were opened during this period and PPI accounted for 61% of new complaints.