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Hedge Funds Strapped in at the Co-op

Aug 21

Written by:
21/08/2017 10:31  RssIcon

Shaun Fensom on the future of the Coop Bank 

 

After four months of uncertainty, the Co-operative Bank finally announced, in June, that it had agreed a deal with investors to raise additional capital.

In February, the bank had announced that it was looking for a buyer. They needed someone with deep pockets – £700 million to put the bank on a secure footing and to be sure of meeting its future obligations to the regulator. 

 

Image: Coop Bank

 

Media attention focused on a possible takeover by another bank – Virgin Money and the Clydesdale and Yorkshire Banking group were both said to be interested. However, as the Customer Union/Save Our Bank emphasised at the time, the bank said it was interested in talking to investors as well as potential buyers as a source of capital. There was even the distant possibility that a co-operative financial institution could invest and so increase the co-operative stake in the bank.


Still 'cooperative'?

As it turned out, far from increasing co-operative ownership, the bank will be left almost entirely in the hands of private investors: The Co-operative Group’s shareholding will fall from 20% to 1%. This has led to renewed questions on whether the bank should be allowed to continue using the name ‘Co-operative’.

Co-operatives UK – effectively the gatekeeper of the ‘co-operative’ name – has already stated that the bank should be allowed to use the name so long as it continues to provide support for the movement.

Co-operative ownership is an important issue for the Save Our Bank campaign, which has had two aims since the Co-operative Group lost control in 2013: 

making sure that the bank sticks to its ethical principles, and an eventual return of the bank to co-operative ownership.

 

Positive news

For that second aim the new deal is a big setback. But there is also much to be positive about.

First, the bank has retained its independence. It continues to trade as the Co-op from its base in Manchester. If it had been taken over by another bank that could all have been lost. 

Morale among employees has been greatly boosted as a result. The hedge funds are not interested in owning a British bank forever. They will want an ‘exit’ at some point, and the independence of the bank may be threatened again at that time. But the bank is now on a surer footing, and this makes it easier to start the process of building a new co-operative stake. 

Preliminary research prepared for the Customer Union by Ethical Consumer shows that there are various ways this could be done. Customer Union members have already decided that the union should take direct action by building its own stake.

Secondly, the bank made it very clear to the Customer Union that the ethical policy was central to the discussions it was having with potential buyers and investors. Having committed a lot more money, the hedge funds and bondholders are even more bound to this strategy. 

Meanwhile the bank has new energy and confidence to build on its ethical reputation and the loyalty of its customers. It will put this at the heart of its recovery plan, using the opportunity to celebrate 25 years since it launched its ground-breaking ethical strategy in 1992. 


What next?

The sale process worried many Customer Union members and Save Our Bank supporters. Some felt this meant it was time to leave. But, from the start, the Customer Union has urged that members and supporters wait and see the outcome. That, whatever we decide to do, we should stick together.

We’ll be meeting the bank soon to hear more about the deal, about the bank’s plans for the ethical policy, and to discuss what can be done to start building a co-operative, customer ownership stake. Then we’ll report back to members for them to decide. 

 

If you’re a customer of the Co-op Bank you can take part in that decision by joining the Customer Union at the Save Our Bank website. 

 


 

 

 

 


 

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