How lawful is the ‘Co-operative’ Bank’s name now?

Ian Snaith of DWF LLP on how the Co-op Bank's recapitalisation plans affect its continued use of the name 'Co-operative'

Ian Snaith of DWF LLP, is a legal researcher, writer and consultant

In 2013 the Co-operative Bank Ltd was bailed out by US hedge funds and moved from being a wholly owned PLC subsidiary of the Co-operative Group Ltd to 70% investor ownership, a 30% Co-op Group stake and minority Co-op representation on its board. That posed a legal risk to its use of the “Co-operative” name.

Four years later, having failed to find bidders to buy the bank outright, the Bank’s owners propose a new recapitalisation. As financial writer Frances Coppola points out in her blog post, this is needed to provide the £700 million capital injection required by the Prudential Regulation Authority (PRA), the UK Bank Regulator, and avoid the Bank being wound up under the Banking Act 2012 “Resolution Procedure” because of failure to meet the regulator’s capital requirements. That procedure would wipe out the current owners’ stake.

The proposed recapitalisation involves a debt for shares swap by the hedge funds (retail holders of Bank bonds can take 45% of their value for holdings under £100,000 instead). Together, that swap and a rights issue to the hedge funds as Bank shareholders would raise the necessary £700 million – if it is formally agreed by bondholders.

The Bank’s relationship with the Co-operative Group is affected in three key ways:

  • the Group’s ownership stake in the Bank shrinks to 1%;
  • there will be no Group representation on the Bank board; and
  • the Group and Bank pension schemes will be split so as to end Bank liability under the Group scheme.

In addition, the Bank maintains involvement in the Group’s membership scheme, the Bank and the Group share “branding co-existence principles” and they liaise on the use of each other’s trademarks and intellectual property.

How does this affect the Bank’s continued use of the name Co-operative?

Co-operatives UK welcomed the new recapitalisation and agrees to the Bank’s use of the name. That’s based on the Bank’s commitment to co-operative values and a compliance with a CUK-monitored agreement and CUK’s 2015 criteria for use of a co-operative trading name by non-co-ops. The Bank is the main banker to co-operative organisations and provided £1 million from 2016 to fund CUK’s Hive co-op development service.

The Bank Customer Union notes that the bank’s ethical policy isn’t threatened by the recapitalisation deal but will continue to press for the preservation bank co-operative values if the deal is agreed.

The Bank mentions the legal, financial and reputational risk of losing the use of the “Co-operative” name in its 2016 Annual Report. The report states that the Bank owns the “Co-operative Bank” trademark but the report acknowledges that “a loss of support from key stakeholders for the Bank’s continued use of the term ‘co-operative’ may result in a risk that [the] authorities could look to exercise their powers.”

The Bank’s commitment to embedding co-operative values and ethics in its articles of association and its Ethical Policy is one way of managing that risk. However, changes in Bank ownership or capital structure present a risk to continued stakeholder support and so a danger of the legal uncertainty discussed in 2013.

The difficulties faced by this historically Co-operative-owned bank have resulted in imaginative manoeuvres by Co-operatives UK and the Group to salvage as much as possible for co-ops and customers from a difficult situation. They’ve used the leverage that market based capitalism provides. That continues at present but it remains to be seen how the story will end for the Bank’s survival in the marketplace and the the co-operative values it currently promotes.

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