At the end of June the Co-op Bank announced that it had reached agreement on a capital raising plan, “to secure the long-term future of the UK’s leading ethical bank”. The bank’s announcement is here [PDF].
The deal – and bear in mind it’s not formally agreed yet – means the bank will raise £700m in capital from its existing investors, principally US hedge funds, and that the Co-operative Group’s stake will fall from 20% currently to under 1%, with the relationship between the Group and Bank reaching a formal end by 2020. £250m of the total will be raised through selling new shares, and the remainder through investors agreeing to swap their bonds for shares. The bank will also have a separate pension fund from the Group as part of the arrangement.
How does the deal measure up against our aims?
Our campaign was established with two main aims – to make sure the bank sticks to its ethical policy, and to help it ultimately return to cooperative ownership. This deal is clearly a set-back for the second of those aims. The bank’s cooperative ownership is being reduced to next to nothing. This means that the Co-op Group will lose the right to appoint a director to the bank’s Board and Values & Ethics Committee, that the right of bank customers to become members of the Group will end, and that the Group will no longer market the bank’s products. But the impact of this from a customer point of view may not be that significant. While the Group’s stake made the bank “20% cooperatively owned” in theory, in practice the bank was managed independently of the Group, with no clear channels for Co-op members to try to make or influence decisions at the bank. (In fact we think we’ve had much more influence over the bank as a group of organised customers than we could ever have had through the Group’s democratic channels.) There are upsides as well. The bank’s ethical policy does not seem to be under threat from this deal. We think it would have been had it been absorbed by a larger bank, as seemed likely earlier on in this process. The bank is independent, and we hope the deal will secure its long-term future as promised. We’re also mindful that the hedge fund owners are not in this for the long-term; they will want an exit at some point, and a return to cooperative ownership must be on the table when that time comes.
The Co-op Bank should emerge from this process with less debt, and with a stand-alone pension scheme, making it a more attractive investment for cooperative capital. With shares in the bank at a low price, this would be a good time to move forward with our plans to build a new cooperatively-owned stake in the bank, through the cooperative Customer Union. But we also need to see how the Co-op Bank plans to live up to its commitment to support cooperative values after it severs its links with the Co-op Group.
Co-operatives UK has spoken, and determined that the bank can continue to use its current name, despite the further drop in cooperative ownership. Co-operatives UK has criteria for non-cooperatives like the bank using the ‘Co-operative’ name, and these are not related to ownership. Although it seems jarring for the bank to keep using the name “The Co-operative Bank” while it is not a cooperative (and never has been, in the strict sense), the name can be seen as reflecting its role as a bank for the cooperative sector. Given the bank’s history, its support for cooperatives, and its position as the largest provider of financial services to cooperatives, this is legitimate, although the bank needs to do more to show how it supports cooperative values and principles in light of the ownership change.
What does this mean for the Save Our Bank campaign and the Customer Union?
As we said at the start of this update, this deal is not yet done, and depends on the agreement of bondholders as well as the success of the new share issue. Once it is complete (assuming it succeeds), we’ll urgently seek a meeting with the bank to ask for more details about how it will preserve cooperative values after its break with the Co-op Group. We want to see the bank develop a plan to grow cooperative ownership when and if the hedge funds sell up, and we want to work with the bank on ways for customers to have a real say at the bank.