Last updated: July 2016
The Co-operative Bank
Three years ago The Co-operative Group was forced to make an ‘historic compromise’ with private capital to prevent the collapse of its banking arm. The stakes were high: failure of the bank would probably have meant the end of The Co-operative Group itself – the oldest and most iconic co-operative in the world. A rescue was arranged without state intervention (in contrast to the rescue of Lloyds and RBS in 2008), but at a price.
Late in 2013, a deal was struck with people who had lent the bank money, including several US hedge funds, giving them a 70% share of the bank. The Co-operative Group remained the largest shareholder. But it had lost overall control.
For many customers the first instinct was to leave for Nationwide or one of the other mutuals. With US hedge funds in control, what chance that the bank would maintain its world-leading ethical policies and brave campaigning.
Rise of Save Our Bank campaign
The Save Our Bank campaign started with the belief that something good could be saved if the customers who cared about ethics were organised – because without customers any bank is worthless – something a hedge fund understands. Over 10,000 supporters signed up to an on-line campaign calling on the bank to maintain its ethical policy and for an eventual return to co-operative control. For many loyal customers, Save Our Bank offered a way to make their feelings known without leaving – a point not lost on the bank.
The first challenge for the campaign came when the new management said it would survey customers about a renewed ethical policy. Surveys can be manipulated and this could be used as an excuse to water the ethical policy down, for example by downplaying ‘political’ concerns like human rights in favour of promises to ‘treat customers fairly’. Ahead of the survey, Save Our Bank supporters put huge pressure on the bank by writing, emailing and tweeting. Eventually the CEO of the bank stated publicly that no existing commitments would be dropped. The bank asked Save Our Bank for advice on the content of the survey.
The new policy was finally announced in January 2015 after more than 70,000 customers had taken part. The bank kept its promise – a close reading showed that on all but a couple of minor issues, the existing policy was unmolested. Plus there were significant new commitments. Critical but positive engagement with the bank had paid off.
Successes and failures
Perhaps unsurprisingly, there was less success when Save Our Bank called on the chief executive to take a stand on spiralling executive pay by foregoing his bonus. The bank says that Niall Booker is a turnaround specialist paid to do a particular job and has hinted that his successor will be paid less. We shall see. The bank’s position was thrown into sharp contrast when Richard Pennycook, CEO of The Co-operative Group ‘demanded’ recently that his salary be cut by 60%.
But there were other signs that positive engagement with the bank could produce results. Save Our Bank had called on the bank to “return to campaigning”, and the bank used these very words when it launched a joint campaign with Refuge on financial abuse in intimate relationships. The bank is also providing a generous £1million to fund an innovative co-operative support programme led by Co-operatives UK.
The customer union
The Save Our Bank campaign proved that organised customer pressure can produce results. As the campaign progressed, the question became how to sustain it. And what could customers do to help bring the bank back under co-operative control?
Save Our Bank decided to create a ‘customer union’ – so far as we know this has never been tried before. Members are asked to pay a small subscription to fund the union, which keeps an eye on the bank.
A crowdfunding campaign to set up the customer union raised more than twice the target of £15,000. By the time you read this the Customer Union for Ethical Banking (CUEB) will be in business and new members will be able to sign up online and join the 1,500 who have already paid their first year’s subscription of £12. CUEB is a legally-constituted co-operative and everybody gets one vote.
A new type of co-operative
The union is formed as a co-operative with the potential to crowd-fund the purchase of shares, creating a new, independent co-operative stake. Of course, even with the current low valuation of the bank’s shares, rebuilding a co-operative controlling interest is a massive undertaking.
However, with just a small stake the customer union would be able to collaborate with other investors. What’s more, member control is at least as important in the co-operative movement as member ownership, and arguably Save Our Bank supporters have already had more influence over the bank than co-op members had when the bank was still 100% owned by The Co-operative Group.
Lastly, many small contributions make a big one: this is how the co-operative movement was built and much bigger co-operative banks like Credit Agricole in France turn to their customers for large amounts of capital.
Error of judgement over Palestine
Even as the crowdfunding was underway, a new issue arose that caused many who had stayed loyal to the bank to question whether the ethical policy was just a facade.
Without any explanation (beyond an occasional reference to ‘risk appetite’) the bank closed the accounts of around 40 support and campaigning groups, mainly working in Palestine. These included the Palestine Solidarity Campaign, and also the Cuba Solidarity Campaign and the Nicaragua Solidarity Campaign. It is difficult to think of an action more likely to raise suspicions that the bank was coming under political pressure from its new shareholders.
When challenged however, the bank was adamant that the decision was purely operational and taken to reduce the risk of a penalty from regulators for not ensuring that money transferred to ‘high risk areas’ does not end up funding illegal activities.
This left some unanswered questions, not least why the groups affected had not been asked in any detail about their work (some say they never transfer money abroad). It seems that the commercial calculation was that it was cheaper to close accounts than carry out this detailed work. The furore generated came at the very time the bank was launching its initiatives on financial abuse and co-operative support. The closures were paused pending a review of communications.
Recently however, groups working on Nicaragua have been asked to complete long forms about their activities under threat of having their accounts closed (one has simply been told its account will be closed). This is bad news. But if you accept – as we do – that all the banks are coming under massive pressure from regulators and governments, and that the Co-op, with 40,000 charity accounts is facing a much greater burden than other banks, then the forms are a step forward. The bank is at least looking at each case rather than simply closing the accounts.
We also welcome the policy agreed at the Amnesty International UK AGM to pressure the Co-op Bank to take careful account of the impact on the work of human rights organisations, but also to press government on this issue.
And here in the end is the core of the argument. When it was told to close its account, the Palestine Solidarity Campaign called on its supporters to leave the Co-op. But what’s the alternative? Which are the consumer banks that have a real ethical policy and which help human rights organisations carry out their work?
Still worth saving
The Co-op Bank has its faults and is certainly making mistakes, but for most banking customers it is arguably better than any of the alternatives. The bank is striking a balance between commercial pressures and the need to support its ethical brand. If an organised group of customers can shift that balance, that surely is worthwhile. If it ever comes to a point where the bank is no longer worth saving, the customer union can take the decision to leave, but democratically and together, not in ones and twos.
There is, however, a much more positive argument for sticking with the bank and joining the customer union. The Internet and social media give consumers new power. A customer union can organise and focus that power. Working with employee unions and like-minded investors, and soon with a shareholding of its own, there could even come a time when such stakeholders become the dominant voice. A time when the bank is run in the interests of its customers, employees and the wider community.
In fact, just what you would want from a co-operative bank.