Co-op sale signals desperate times at the Bank

February 14, 2017

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In the latest blow to the UK’s pre-eminent and poster-child “ethical” bank, The Co-operative Bank yesterday put itself up for sale in a move that is widely being interpreted as approaching endgame in a death spiral.

Executives insist that this is simply a capital raising exercise, and that the bank is on its way to recovery from the near-bankruptcy that shook the bank to it’s foundations in 2013. As the sellers, they have to pitch their product. The truth is that this is the last spin of the dice for a desperate and downtrodden institution, and like a boxer who’s taken too many punches, the bank is up against the ropes and looks increasingly unsteady on it’s feet.

Rumours abound in The City that the Bank of England has already threatened to wind down the institution, placing a tight timescale on The Coop to improve its capital base that could prove unachievable. If this rumour is true, the sale seems less of a capital raising exercise and more like dumping a dead asset so that someone else picks up the tab.

The Co-op Bank’s listing on the London Stock Exchange plummeted by almost 50% in the days before the sale announcement, giving credence to the rumours. Forewarned is forearmed, they say.

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It’s difficult to see how the bank can survive this latest crisis unscathed. One popular theory is that the TSB is likely to take over the Co-op, because of its “ethical and local” approach to banking.

This is a complete misnomer – the TSB is no more ethical or local than any other big high street bank. As we have argued before in regards to the Co-op, it is structure rather than policies that make a bank truly ethical – and the TSB doesn’t have either. Even as the lender celebrates disentangling its backend systems from it’s former parent, Lloyds, its board is still dominated by former Lloyds executives. The apple rarely falls far from the tree.

TSB’s claim to be a local bank is also farcical. Like any other plc bank, lending policies and decisions are made through centralised systems, not local bank managers or human discretion. There are no obvious geographic redistributive efforts conducted by the TSB. The only thing that could plausibly allow TSB to say that it is local is that many decades ago they used to be genuinely local Trustee Savings Banks, and today they carry the remnants of that name, if not it’s legacy. In other words, the “local bank” monicker is nothing more than a marketing ploy, a branding effort, a “differentiator” from other banks where indeed there is little difference.

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Which would go some way to explaining their interest in buying The Co-operative Bank. When it was sold to US vulture funds, the Co-op enshrined its ethical policy into its constitution for the first time. This gave the ethical policy a protection that it had previously not been afforded – so far so good.

But what was interesting was the justification and reasoning given for this decision. The bank’s new owners said that they wanted to protect “the USP” of the bank and that its “ethical image” was an important “differentiator”. The Co-op’s new owners saw the value of the bank’s ethical credentials, but they saw it as a financial value rather than a moral one. The danger of the Co-op now being up for sale is that it’s latest buyer may just take on the ethical style, without implementing anything of substance. The danger is of a whitewash – retaining the ethical branding whilst removing the ethical policies.

Another route for the troubled Co-operative would be for it’s members to take back control. Yet despite the valiant efforts of the worthy and noble Customer Union for Ethical Banking (formerly the Save Our Bank campaign), organisation from below is simply not yet mature enough, nor can it yet afford the relatively modest £700m that the bank is priced up at to take it back under genuine co-operative ownership.

If the TSB – or any other potential buyer – does not like the look of inheriting the noose of Britannia’s black-hole loan book then a final, and potentially more likely, fate remains. As explained by an analyst from “global credit markets research company” CreditSights, “in this scenario the critical functions of the bank, including much of its loan book and its deposits would be transferred to a private sector purchaser or to a bridge bank controlled by the Bank of England, while the rump would be wound down into administration.” A bleak scenario for the “ethical” bank indeed.

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What next for ethical banking?

Where then does this leave the ethical banking sector, given the Co-operative’s prominent place in its limited cohort?

The launch of Move Your Money’s ethical bank ranking scorecard in 2013 demonstrated that The Co-operative Bank was not quite as ethical as it liked to portray. Scoring only 51%, the bank was far superior to any of the big 5 banks – but lagged way behind all other ethical providers, and even most challenger banks.

Since then, the Co-op has come under fire for drug-addled executives, culling branches, vulture fund owners, and ongoing IT failures – hardly a “differentiator” from the major banks in those regards. More damaging are the ongoing capital inadequacies of the bank, and even worse for its ethical image, the poorly handled and frankly egregious attempt to dump social justice campaign groups from it’s customer base.

For a bank built – and sold on – ethical credentials, these issues proved too far for many of it’s ethical leaning customer base. In the 9 months for which data is available since the account closures debacle, the Co-operative Bank lost an astonishing 22,858 customers net. No wonder executives are panicking. Those figures will only worsen on yesterday’s news.

There are other options available in the ethical banking space, and they look set to grow if Triodos Bank’s long-fabled current account really is launched this year. As such, the ethical banking sector goes beyond simply the Co-operative Bank – and indeed, may not even include it at all anymore.

Move Your Money is currently reviewing the Co-operative Bank’s position as a recommended provider. In the mean time, the fortunes and activities of the bank will be closely watched – not just by ethical banking fanatics, but by the vultures that look set to lose the most from it’s demise.

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