The UK's Co-operative Bank is to spend £500 million on re-engineering its technology infrastructure as part of a hedge fund-backed rescue plan that will see 15% of the branch network slashed and over 1000 jobs cut.
In a statement, the Co-op says: "The bank's strategy, which involves a four to five year turn-around plan, is to de-risk the bank by becoming a commercial bank focused on retail and small and medium sized (SME) franchise businesses in the UK."
Co-op had to come up with a rescue for its bank after the discovery of a £1.5bn hole in its balance sheet, caused by bad loans and the 2009 merger with Britannia building society. Under the new plan, the Co-operative group will retain a 30% interest in the bank, with the remaining 70% owned by its creditors.
The bank has laid out a strategy to secure "substantial long-term cost savings", targeting a cost-to-income ratio for the core business of less than 60%.
Key to this will be a re-engineering of the Co-op's ageing IT infrastructure to ensure the bank can meet its on-going commitments to regulators and customers and build new digital channel applications for Web-based and mobile banking.
"It is expected that over time digital channels will be customers' preferred point of contact," says the bank. "These enhancements are intended to allow the bank to reduce its call centre and branch footprint whilst maintaining its market-leading levels of customer service."
The bank says it will cut 15% of its current estate of 324 branches by end 2014 and rationalise its network of corporate banking centres.
The IT remediation programme has been budgeted at £500 million, of which approximately 45% is expected to be capitalised.