Britain’s biggest mutual bank, the Co-operative, is going public. In order to stave off nationalisation and plug a £1.5bn capital shortfall, the Co-op Bank will float around a quarter of its shares on the stock exchange. It will also ask its bondholders, including private investors, to take a ‘haircut’ – likely to total around 30% – in return for new shares. The Co-op Bank has been sunk by its takeover of the Britannia Building Society in 2009, which left it with huge losses on property and commercial loans.
What the commentators said
The Rochdale Pioneers created the Co-op in the 19th century “as a proto-socialist counterbalance to proprietary businesses”, said Jonathan Guthrie in the FT. They “must be spinning in their nonconformist graves”. Fans of the collective ownership model will be “pained” by this “shipwreck”, added the FT. But the lesson here is that “a bank owned by a mutual is still a bank”. And it’s quite clear now that “mutuality is no safeguard against the hubris that led so many banks’ management to bite off bigger and worse acquisitions than they could chew”.
The Co-op’s collapse also hampers efforts to boost competition in the oligopolistic retail banking market, added the FT. The Co-op was set to snap up the 600 branches divested by Lloyds before its capital shortfall made it withdraw from the sell-off. Under this plan, the bank will be saved and “may yet prosper again”, said Nils Pratley in The Guardian.
But stakeholders are still owed a detailed post-mortem on how the disastrous Britannia takeover happened. Surely some members of the 34-strong board weren’t carried away by the idea of creating a “super mutual”? What’s more, the group’s capital deficiency was “an open secret” before it withdrew from the Lloyds branch sale deal. “The whole story of [the Co-op’s] misadventure and the… shambles [of the Lloyds sale] has yet to emerge.”
[xyz_lbx_custom_shortcode id=6]