The Co-operative Bank: A co-operative only in name

Since the Co-operative Bank hit the headlines last year, it has been a well-reported myth that the bank was actually a co-operative organisation. However, formed in 1872 as...

Since the Co-operative Bank hit the headlines last year, it has been a well-reported myth that the bank was actually a co-operative organisation.

However, formed in 1872 as a division of the Co-operative Wholesale Society, the Bank had never been truly independent and was always a wholly-owned subsidiary of the CWS, which later became the Co-operative Group.

Thus the Bank was never a true co-operative because it was not owned directly by its members.

In its early years, it operated as the Loan and Deposit department of the CWS and became the CWS Bank four years later. But the Bank did not become a registered company until 1971, and another four years passed before it became a member of the London Clearing Banks and was allowed to offer cheques. In 1974, it was the first Bank to offer free personal banking.

Eighteen years later, it launched its Ethical Policy, which refused to do business with organisations it deemed unethical. This included those that manufacture or transfers arms to oppressive regimes, or any business that contributed to climate change, such as the extraction of fossil fuels. The Bank estimated that since its launch, the policy has turned away around £1bn of new business.

In 2008, the Co-operative Group had a vision for the Bank to form a super-mutual with Britannia – the first co-operative/building society merger. This was achieved in August 2009, and at the was time described as the “next step in the renaissance of the co-operative and mutual sector” by chief executive Neville Richardson.

Two years later, in August 2011, the Co-operative Group announced its intention to bid for 632 Lloyds branches under Project Verde – and by the following July, the Group had agreed “heads of terms” to purchase the branches.

Chancellor George Osborne praised the deal, saying this creates “a new challenger bank”.

Then last year, the Bank’s problems started to arise. It reported a loss of £257m in 2012, with debts from Britannia to blame, and announced that life insurance, asset management and general insurance businesses were to be sold.

A month later, the Group withdrew its offer for Lloyds, with then chief executive Peter Marks citing a “worsened outlook” in the economy and “increasing regulatory requirements”.

In May, Moody’s downgraded the Bank’s credit rating by six notches and the Bank’s chief executive Barry Tootell resigned. Former HSBC executive Niall Booker was named as his replacement. Banking Group chair Paul Flowers also stepped down and was replaced by Richard Pym, Chair of UK Asset Resolution.

In June, the Treasury Committee announced an inquiry into the collapse of ‘Project Verde’. Later that month it announced announced a shortfall in capital of £1.5bn.

In the six months to 6 July 2013, the Bank reported an overall loss of £709m. Some of the Bank’s losses include the write-down of loans valued at £496m, with £434m coming from corporate loan books. IT assets previously designed to replace the Bank’s existing platform will no longer be implemented, resulting in a write-down of £150m.

The Bank’s ownership structure changed in December. Funds to fill the capital black hole were raised from from bondholders, the divestment of Co-operative Insurance and capital from the Co-operative Group.

The Group ended up with a 30% stake in the Bank, with the remaining 70% in the hands of private and institutional investors.

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