Monday 13 February 2017 9:27 am

Co-operative Bank and Capita resolve differences after row over £325m contract

By: Oliver Gill

The Co-operative Bank and Capita have resolved their differences after a public spat over alleged failings regarding a £325m servicing contract.

The lender sold its mortgage servicing company, Western Mortgages Services (WMS), to Capita in November 2014 for £25m. The deal was followed by a 10-year contract for Capita to service the Co-operative Bank's mortgage book by using WMS to implement a transformation programme.

Read more: Here's actually what is happening between Capita and Co-op Bank

In September last year, the Co-op Bank said Capita had failed to deliver on elements of the plan and was withholding payment. Capita refuted the claims, but acknowledged a "contractual dispute" and admitted a "risk of litigation" as a result of the spat.

However, in a short statement today – the same day the Co-operative Bank put itself up for sale – Capita said it had resolved its differences with the lender over the WMS dispute.

The 10-year agreement to service mortgages was halved to five years – to conclude in 2020 – and work on the IT transformation is to be binned. Capita said 740 jobs in London, Plymouth and Leek have been saved as a result of the cessation of hostilities.

Jobs still on the line?

Robin Speakman, an analyst at Shore Capital, explained achieving a resolution was in the interests of both companies: for Co-operative Bank so it could press ahead with selling itself and for Capita, before its full-year results.

Read more: The Co-operative Bank has put itself up for sale

However, he warned the culling of IT element of the contract was not good news for Capita, given this was the more profitability element of the contract. "This resolution is likely negative in the mix for margins," he said.

While the safeguarding of 740 jobs is likely to be welcome news to the staff involved, Speakman questioned whether the contract would remain in place if and when Co-operative Bank was sold. He said it was "quite possible" the contract could be voided once the ownership of the lender changed hands.

A spokesperson for Capita told City PM if there was any change of control at Co-operative Bank the contract would remain in place until the end of the term with a further option to extend thereafter.

Read more: Co-op Bank's message to customers: It's business as usual

Neither Co-operative Bank nor Capita have responded to a request for comment on further details of the agreement – including the new value of the contact – at the time of writing.