The toxic influence of the credit crunch has even reached the co-operative movement, with the Co-op Bank today revealing it has lost £31.8 million buying structured investment products linked to US mortgages.

The bank has lost half the £63 million it put into SIVs (structured investment vehicles) run by Citigroup, HSBC and Bank of Montreal.

The losses dented profits growth at Co-operative Financial Services, which owns the Co-op Bank and today reported a 6 per cent increase in profit before tax, investment fluctuations and one-off costs to £155 million.

DEavid Anderson, the chief executive of CFS, said that the bank had started investing in SIVs in 2005, attracted by the higher potential returns. It was part of the group's balanced treasury portfolio, he said.

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Overall banking bad debt levels fell from £105 million to £102 million, thanks to "extremely low default levels" in secured loans. However, bad debts in the corporate loan book increased.

CFS said that it was gradually withdrawing from lending to football clubs, where it has sustained loan losses in the past. The Co-op bank embarked on an ill-fated foray into football club lending ten years ago, and continues to bankroll seven or eight clubs, including Derby County and Coventry City.

"I think ten years ago it probably seemed like a good idea," Mr Anderson said. "We've been managing our way out of the sector."

Mr Anderson's pay last year rose from £844,000 to £1.28 million, making him one of the highest paid people in the co-operative movement.

Co-op Bank, like First Direct, was among banks this week to pull a range of low-cost mortgages after being overwhelmed by demand from applicants coming off two-year fixes and looking for fresh deals.

CFS uses the wholesale money markets for only about 10 per cent of its funding, so has been less hit by the paralysis in those markets.

CFS will pay a £30.1 million dividend this year to the ultimate parent, the Co-operative Group, which owns the Co-op branded supermarkets and funeral parlours.

SIVs are arm's length vehicles that borrow short term and invest the proceeds in higher-yielding asset backed securities, including those backed by US sub-prime mortgages.

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