The Co-operative Bank and hedge funds: an FT perspective and Jo Bird’s proposal

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A pitiless Financial Times editorial, implicitly praising ‘clear-eyed, profit-maximising hedge funds’, opened yesterday:

FT logo“The Co-operative Bank is a misnomer and its celebrated ethical policy a modern invention. The venerable Manchester-based bank is not a mutual owned by its own customers. Its policy of forswearing investments in conscience-pricking activities such as genetic engineering and fossil-fuel extraction dates only from 1992.

“Adversity has now obliged the Co-op bank to discard many cherished and time-hallowed traditions. Forced to restructure after a mishandled merger with the Britannia building society exposed a £1.5bn hole in its balance sheet, the bank and its parent, the Co-operative Group, have accepted far-reaching changes to its ownership and governance. A majority of the equity will now be controlled not by the mutual society but by clear-eyed, profit-maximising hedge funds . . .”

Readers will note that it points out that the Group’s stake – expected to be about 30% and financed by the sale of its insurance arm – ‘cements the ethical policy’. Written into its articles, this is unchangeable without a 75% vote in favour.

How long will this last with hedge funds in control?

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Jo Bird suggests a course of action which would leave hedge funds owning an almost worthless bank, bereft of customers.

The writer remembers being impressed by this able young co-operator when she met her years ago. Read Jo’s remarkable profile here.

She writes in the latest issue of the Co-operative News:

jo bird co-operativeRichard Bickle (Letters, October 8) suggested “an alternative reconstruction of the Co-operative Bank as an IPS with transferable share capital of £1.5 billion with £500 million subscribed by each of the Co-operative Group, other cc-operative enterprises, and individual members”.

On paper, this is not too fanciful. Recent experience within the Co-operative Movement shows that significant share capital can be raised from shareholders using the IPS legal form. The Co-operative Group boasts more than 7 million members, and the Bank claims 4.7m customers.

Given the right offer, 556,000 people could probably be mobilised to invest the average of £900, thus raising £500m in capital.

The Cc-operative Movement has another model of harnessing support within a plc. Supporters Trusts successfully organise football fans to own shares and have seats on the Board of a larger plc. This model works even in a sector littered with companies that would be given junk status by Moody’s rating agency.

However, I could not support these models for the Bank’s future, because of continuing governance disasters at the Cc-operative Bank.

For example:

  • There is a lack of transparency about any governance remit for the independent review, chaired by Sir Christopher Kelly.
  • Members remain uninformed about almost every aspect of decision-making in the Co-operative Group and Bank.
  • There is little confidence in the Board, given their failure to perform their responsibilities and hold senior management to account.
  • There is no visible change to a corporate culture of ‘fat cat’ executive pay, large pay differentials and payouts.

The Save the Co-operative Bank petition on Change.org has been signed by hundreds of co-op members who “shall not remain customers of the Co-op Bank unless a proposal is made to return the bank to 100% member ownership and control”.

A collective switch?

If governance lessons are not applied, perhaps the next best course of action would be a collective switch.

Together, we could move our money to (or create) a bank or building society more willing and able to be ethical, transparent and accountable. The Co-operative Movement would then gain significant control over a financial institution – and we would have the satisfaction of leaving capitalist hedge funds owning an almost worthless bank, bereft of customers.

Proposals for a Quaker Bank have also attracted interest; both would steer clear of the so-called ‘clear-eyed, profit-maximising hedge funds’.

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This entry was posted in Banking, Co-operative movement, Co-operative News, Democratic participation, Problems and tagged , . Bookmark the permalink.

2 Responses to The Co-operative Bank and hedge funds: an FT perspective and Jo Bird’s proposal

  1. Graham Freer says:

    I agree – I have very little confidence in the co-operative bank who have totally mis-managed the business and kept members in the dark the whole time.

    The financial crisis should have been a huge springboard for ethical mutuals. Instead we learn that the cooperative bank has been equally mismanaged and no more trustworthy. An incredible missed opportunity.

    An alternative new completely independent from the old Coop bank would seem the way forward.

  2. Maggie Eisner says:

    Please keep me in touch with developments

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