Legal Business Blogs

ABS growing pains: Co-op Legal Service’s losses simply teething troubles, says GC

With news that Co-operative Legal Services (CLS) has posted a £3.4m loss in the for first half of 2013, the group’s recently installed general counsel Alistair Asher says the business is still in its infancy and will flourish, provided it has the appropriate levels of investment. The loss comes despite turnover in the Co-op’s legal arm growing by 5.8% on last year to £18.1m.

GC to the board of The Co-operative Group, Asher said: ‘The top line is growing so the bottom line will improve. CLS is still a start-up business so it is not a case of turning anything around, it’s actually about developing the business and moving forward. CLS is one of the biggest business opportunities for The Co-operative Group right now. We have got the business model we need, we just need to give it support and investment so it can grow.’

CLS was the first major consumer brand to be granted ABS status under the Legal Services Act in March last year. Since then, the total number of licensed bodies has grown to 184, according to the Solicitors Regulation Authority (SRA).

CLS has invested heavily in trying to build a consumer focused ABS brand and recently invested in a multi-million pound TV and radio advertising campaign in June and is currently planning further investments into IT, the details of which are still being confirmed.

Nevertheless, the results contrast with last year’s figures, when CLS posted a small profit of £700,000, although Asher noted that the 2013 loss so far this year are small in comparison with the level of investment made into the business.

One partner at a City law firm said: ‘CLS has invested a lot into consolidating and building a business – its premises in Bristol are huge. The £3.4m loss doesn’t raise any questions about ABS – I don’t expect the business will see profit until 3-5 years into its business plan – but it does raise questions about Co-op’s banking group.’

CLS’ loss is miniscule in comparison with The Co-operative Group’s £559m pre-tax deficit reported in July, incurred mostly in its banking arm. In response, the Prudential Regulation Authority instructed Co-op Bank to make good a £1.5bn capital shortfall, £1bn of which is expected to come from its bondholders.

‘The losses announced on the bank are a result of the impairments to the corporate real estate globally and some residential loan books,’ said Asher. ‘The underlying core banking business is perfectly sound. We have seven million customers and this banking business will be the product of the restructuring over the next few years and this is very complementary with CLS.’