On the surface, the Co-op Bank looks like it has plenty going for it. In an industry where banks are regarded as venal, money-grubbing hucksters, and where its rivals spend most of their time thinking up new ways to rip off their customers, its ethical image should have been a huge advantage. Organic, fair-trade food and clothing does brilliantly well, so there should be a niche in finance as well. The bank also has a relationship with what remains a huge supermarket chain – the Co-op has more than 2,000 branches across the country – and it should have been able to create a decent challenger to the big four banks.
The bank has, however, been mismanaged on an epic scale. In 2013, when it was still majority owned by the broader Co-op Group, it emerged that it needed an extra £1.5bn in capital. Its chairman, the former Methodist minister Paul Flowers, was dismissed amid drug allegations. The following year it was rescued by its bond-holders and a group of American hedge funds, who were always unlikely owners for what was meant to be an ethical bank.
None of that has been enough to secure a sound, long-term future. On Monday, the bank put itself up for sale. According to the chief executive Liam Coleman, low interest rates had slowed down the efforts to turn the bank around, as had the scale of the challenge of integrating its merger with the Britannia Building Society. It was therefore looking for a buyer – presumably one with very deep pockets – to help it through that process.
It remains to be seen whether a buyer emerges – although the suspicion must be that if anyone was that keen, a deal would have been done behind the scenes, and a public auction would not have been necessary. It is hard to believe that anyone will really want it. High-street banking is in deep structural decline. Even worse, Brexit means no foreign buyer wants a toehold in the UK market – if anything, with so much doubt over what will happen to our financial-services industry once we leave the EU, it is more likely that banks will want to get out of the UK than get in.
It is even open to question whether the bank would still be able to use the Co-op name if the chain sells its remaining shares – and without that, even the brand, such as it is, will be finished. True, one of the web-based challengers might want the customer base and brand, if it remains, as a way of leap-frogging its way into the big league. But it won’t want the risk of potential bad debts that come with it, and it seems unlikely that its venture-capital backers would be willing to finance a move into the old economy.
It may well prove impossible to find a buyer – or only at a knock-down price. But more seriously, a failed sale will make the miserable state of high-street banking starkly obvious. The decline of traditional branch banking has been evident for years. It is burdened with massive costs, largely created by having to maintain a vast network of what are effectively shops, even as customers switch to making all their transactions on the web. No matter how fast the banks shut branches down, they are still a huge drain on resources.
Their brands have been trashed by years of mis-selling products to their customers, and building hidden and disguised charges into their business model – if there is anyone out there who actually likes their bank they are keeping themselves well hidden. Worst of all, the internet has now levelled the playing field, making it possible for a host of funky new innovative challengers to spring up and start taking customers away. The industry has not quite reached the tipping point when it tumbles into the abyss of oblivion yet – but that point may not be far away.