CFS profits jump to £73.4m

A huge recovery at its general insurance arm helped Co-operative Financial Services (CFS) to almost double first-half profits despite another £25million write-down of toxic investments at the Co-op Bank.

Chief executive David Anderson said: "While we are not immune from the economic consequences of the credit crunch, we have a strong balance sheet, very strong retail funding and a clear path for the future of our business."

Group profits rose from £38million to £73.4million in the six months to 26 July. Even after £25million of credit-crunch related write-downs the Co-op Bank, which was subsumed into CFS just over a year ago, hiked its profit from £45.5million to £46.2million.

Anderson said that all that was now left of the Special Investment Vehicle (SIV) assets after this half's write-down on top of last year's £31.8million loss was a "residual asset value of around £6million."

The bank had invested originally in four or five SIVs whose managers included HSBC and Citigroup.
Anderson said the bank was benefiting from its model of funding all its retail lending through retail deposits.

Anderson said this meant the bank had not had to go into the wholesale funding markets at a time when rates and availability were both very difficult.

However, he said the bank is now working on a way in which it can tap into the Bank of England's special liquidity scheme which rivals have used as a cheap source of borrowing.

Despite strong competition from banks and building societies in the savings market after Northern Rock's nationalisation, Co-op Bank increased its customer deposits by 14% to £9.28billion. Customer lending was up 12% at £939million.

The bank has also seen a reduction in bad debts on both its secured loans and mortgage books.
On the insurance side of the business, the Co-op's first-half losses were cut from £33.3million to £1.5million.

The first half of 2007 saw the insurer take a massive hit from last year's flooding.