The bank, which counts Celtic Football Club and the Labour Party among its customers, slashed the value of its loans with a £496 million impairment charge.
Soured corporate loans, many of which were acquired with its disastrous takeover of Britannia Building Society in 2009, were behind £434 million of the writedowns.
And the lender, which styles itself as the ethical alternative to major names, warned job cuts are likely among its 10,000 staff as it draws up a blueprint to squeeze costs.
The bank, part of the wider customer-owned Co-operative Group, also revealed its core tier one capital ratio - a key measure of financial strength - has slumped to 4.9% from 8.8% a year earlier.
It expects this to improve to between 7% and 9% by the end of the year under plans to plug a £1.5 billion black hole in its finances.
The scale of the bank's woes was unveiled as its new management, led by former HSBC director Niall Booker, attempts to recover from a catalogue of problems following the Britannia deal.
The bank warned it will not be a "going concern" if the £1.5 billion plan - which will force losses on bondholders - flops.
The Co-op added it does not expect the bank to turn a profit for "some years".
The lender, which has 4.7 million customers, wrote down £148.4 million on a new IT system, which had been planned by former management under an ambitious growth strategy.
The replacement computer system was designed for a "much bigger institution", but the Co-op said it does not suit its future needs as a much smaller lender.
And the bank booked another £61 million to cover the cost of previous misconduct - with £25 million for mis-sold payment protection insurance, £26 million for credit card and identity theft protection and £10 million for mis-sold interest rate swaps.
Its humbling pre-tax losses are a far cry from earlier this year, when the bank harboured ambitions to join the "premier league of UK banking" by acquiring more than 600 branches from Lloyds Banking Group. They compare with £58.6 million losses a year earlier.
But in May it was hit by a ratings downgrade and forced to abandon the branch deal. In June it announced painful plans to plug a £1.5 billion capital gap - after City watchdog the Prudential Regulation Authority flagged concerns over its capital buffers.
It involves the Co-op selling its insurance businesses and raising new money from investors to fund £1 billion of that.
The remaining £500 million will come from bondholders, who will be forced to take a hit on their investment and offered shares in the bank in return.
The group said it considered all the options - believed to include a taxpayer bailout of the bank - but its plan is "fair" and in the "long-term interests of all stakeholders".
The bank has been carved into core and non-core divisions, comprising £17 billion and £15 billion of assets respectively.
The Co-op said it has taken a tougher approach to impairments, while classing more loans as non-core, resulting in the higher writedowns.
The non-core business, now called Co-operative Asset Management, will be wound down or sold off in time.
During the first half of the year, the bank also accessed £900 million from the Bank of England's Funding for Lending Scheme, which offers discounted loans in return for boosting lending.
It extended £1.6 billion of new loans during the first half, with 45% of this going to home buyers. It also lent £500 million to businesses, down from £700 million a year earlier, after stopping lending to big companies to focus on loans to small and medium-sized firms.
New Co-operative Group boss Euan Sutherland said: "We are absolutely focused on fixing the difficult and complex issues that we have inherited."