This week, with the Co-op Group effectively ceding control of its banking arm to two US hedge funds, former CEO Peter Marks described the turn of events as a tragedy. It may yet prove a tragedy for his already diminished rating (though it was hardly AAA) once Andrew Tyrie’s Treasury Select Committee inquiry is completed in April. But I can actually see a number of reasons why the deal itself could be viewed as good news for the Co-op.
“Why ‘tragic’ Co-op Bank deal may actually be good news for the Co-op”
Adam Leyland, Editor
As a Co-op Bank account holder myself, I liked this little ethical bank. Unfortunately, it has become clear that, through vaulting ambition, it acquired, in Britannia, a basket case of toxic assets over which it had clearly gained no hold before, and to compound matters, it then embarked on a ‘project’ to pick up Lloyds Bank from the government on the cheap.
Instead of Verde, this project should have been called Code Red. But the Co-op management didn’t seem to realise a) it was playing with fire and b) it didn’t have the intellectual firepower to put out the flames (the fact far bigger banks, with far greater capability, had come unstuck should have provided clues).
In the process, the Co-op has long since abandoned its ethical credentials, with a string of misselling scandals emerging. After already putting aside £269m for PPI mis-selling, this week it revealed it was increasing provisions for bad debts by £105m. The tragedy that may yet emerge is one in which the Co-op’s loyal customers (including me!) have been hoodwinked through mismanagement and poor governance.
So why am I still optimistic? Three reasons. 1) With a 30% stake of a listed company, the Co-op will be the major if not majority shareholder. So it will have some power. 2) I expect ethics to be enshrined in its articles of association - an opportunity to strengthen its ethical position. 3) Euan Sutherland will be freed up to do what he does best: retail. In only his second day in the job, he received the ultimate hospital pass: a phone call from the City advising him the Bank would go bust in six weeks. That tragedy has been averted. Wouldn’t it be great if he could sort out the retail side? It badly needs some flair. And Sutherland can provide it.
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