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The Co-operative Bank has reported an annual loss of £477m, underlining the scale of challenges facing the ethically focused UK lender as it scrambles to find a buyer that will inject fresh capital.

The result is slightly better than the £611m loss it made in 2015. But it means the bank has racked up more than £2.7bn of cumulative losses over the past five years.

Net interest income was down 16 per cent at £395m. Its core capital ratio fell from 15.5 per cent to 11 per cent last year.

Liam Coleman, chief executive, said: “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.”

The Manchester-based lender, which last month put itself up for sale, has suffered a giddy fall from grace over the past four years, hit by almost every imaginable scandal.

A deal to acquire rival TSB collapsed in 2013 after the Co-op Bank admitted there was a £1.5bn hole in its accounts, triggered by large losses on loans from its disastrous merger with Britannia Building Society.

Deepening the crisis, Paul Flowers, the bank’s clergyman-turned-chairman, was dubbed the “Crystal Methodist” and suspended by his church and the Labour party after exposure as a buyer of cocaine and methamphetamine.

It’s former parent, the Co-operative Group, had its stake in the bank diluted to 20 per cent when hedge funds’ debts were converted into shares to boost its capital levels two years ago.

In 2014, the lender failed the Bank of England stress tests, forcing it into a restructuring under special supervision by the regulator.

The bank warned in January that it would fail to meet the capital target it agreed with regulators. JPMorgan analysts estimate that it has a £550m capital shortfall. A key deadline is September, when £400m of senior unsecured bonds mature.

The bank said that as an alternative to a sale it was planning to raise £700m-£750m of extra capital by swapping debt for equity and issuing about £300m of new shares. It expects to issue £250m of junior debt, known as tier 2, as well as MREL securities that can be bailed in during a crisis.

Mr Coleman said:

This is a great retail bank and one that is valued by our 4m loyal customers. We believe there is opportunity and potential to build on the progress made and on our distinctive ethical position.

(Photo: PA.)

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