Analysis: Movement looks at what has happened to the Bank

Is what has happened to the Co-operative Bank inevitable or did it scale too much, too quickly? Co-operative News asks two senior figures within the co-operative movement to...

Is what has happened to the Co-operative Bank inevitable or did it scale too much, too quickly? Co-operative News asks two senior figures within the co-operative movement to provide their analysis.

Peter Hunt, Chief Executive, Mutuo
Tragedy. Disaster. Just two words that have been used to describe the recent events at the Co-operative Bank.  While the Treasury Select Committee continues its questioning of the Verde deal and the Kelly Inquiry deliberates on wider issues, the Bank’s ownership is changing, probably irrevocably.

We need to be able to look beyond the immediate events to fully understand the situation.  It is fair to say at this stage that the financial crisis has caught up with the Bank – assets going bad and a greater regulatory drive for higher capital ratios are two key features of this. And whatever else is going on, this will always cause problems for mutually owned firms.

The fact is that the parent Co-operative Group simply does not have sufficient capital to inject into its subsidiary, and this brings us to the heart of a major weakness in UK co-ops.  Without a tradition of member investment in attractive shares, our co-operatives will always be short of options.  This is why Mutuo has brought forward the Mutuals’ Redeemable Shares Bill – our co-operatives need to be able to issue shares that give flexibility to the business and are rewarding to the member, without undermining mutual ownership.

The European co-operative banking sector relies heavily on such types of shares, and has for the most part been able to count on this crucial additional source of capital.  It is one of the reasons why they have such a sector at all, and we do not. In order to build stable capital bases, we need to be able to offer shares that are not withdrawable, but can be redeemed by the co-operatives themselves. It is too late for our Co-operative Bank, but we need to take action now to make sure that we can strengthen co-operative capital.

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Jim Pettipher, Deputy Executive Director, Co-operative Futures
I did find myself agreeing with Peter Marks on one thing when I watched him giving evidence to the Treasury Select Committee.

The painful loss of the Co-operative Bank to the movement is a tragedy. I don’t say that because I fear that the Co-operative Group is threatened without owning the bank. It isn’t.

The truth is that the bank had become a drain on the resources of the Group. Even without the proposed acquisition of the Lloyds business, I was surprised to learn at a regional conference for elected members a year or more ago that the Group was projecting a massive drop in profits for five years, in large part due to the costs of integrating the Britannia and Co-op Bank businesses.

And that was before Project Verde proper and before the regulator moved the goalposts to reveal a £1.5 billion hole. So, business is business, and Euan Sutherland and his team have, with regret, done the right thing. If I think that, then why do I think the loss of the bank is tragic?

I keep coming back to that most fundamental of questions; what is the Co-operative Group for? History tells us that the Group’s original purpose revolved around providing unadulterated food at affordable prices to its members.

If that remains it, then in all honesty, we should be advising our members to buy the brands that we sell at other, cheaper retailers. We don’t tell them to do that because the Group is about much more.

And yet, at the Treasury Select Committee hearing Peter Marks was still talking about the pursuit of “scale in the business” as if out Tesco-ing Tesco was all that mattered.

Many elected members fought against his drive to be bigger at any price and were caricatured as prophets of false doom for so doing. (Peter Marks’ Quebec 2012 speech is a must watch and is available online.)

It is the Co-operative Group – not pensioned off Peter – that is now paying the price. The Group is not the bank, or the food business, or the pharmacy, the farms or any of the business’s other features. It is its members, and it exists to serve them.

Despite Peter Marks’ protestations to the contrary the tragedy is that this was avoidable and caused by too much Sir Humphrey and not enough Jim Hacker.

We need to be more member led, not less.

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