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Hedge funds capture Labour’s bankers – no longer Coop owned

Coop BankHedge funds and other major investors have forced the Cooperative Group to cede majority control of the Cooperative Bank, Labour’s bankers, with the Group’s stake in the bank dropping from 70% to 30%. The US-based hedge funds Aurelius Capital (a ‘vulture’ fund which bought the debt of bankrupt Argentina and forced them to pay out) and Silver Point Capital (linked to Lehman’s and other distressed financial institutions). They led other major investors who also owned preferential loans to the Coop Bank to overturn the rescue plan to fill a £1.5bn hole in its balance sheet prepared by its newly appointed top management team.

The collapse of the Coop Bank is a major embarrassment to the Cooperative movement and to the Labour Party. It turns out that “our” bankers are not much better than the rest. Opinion varies as to who is blame:

  • Andrew Bailey, the Bank of England’s top regulator, told the Parliamentary Commission on Banking Standards it was because of the dodgy loans made by the Britannia Building Society before its takeover by the Coop Bank.
  • Neville Richardson, former boss of the Britannia blamed the Coop Bank’s dud assets before he became the new boss after the takeover.
  • Others blame the Coop’s rapid expansion – “a story in which David was keen to turn himself into a giant to beat the high street Goliaths” says Daniel Tischer, an academic specialising in ethical banking.
  • And Tischer also blames the Labour government’s policy of pushing healthier institutions to absorb collapsing ones.

In any event, the greed and poor judgement of the very highly-paid people at the top of the will see ordinary people lose a chunk of the savings they had put into bonds and other financial products of the self-styled ethical lender. According to the Guardian, there are 15,000 such small investors who were relying on their investments for retirement income and whom their representative, Mark Taber, describes as “very elderly and vulnerable“.

Their investments and the ethical approach will be soon be controlled by predatory US hedge funds and blue-chip investors. André Spicer, professor of organisational behaviour at Cass Business School, is quoted in Thisisyourmoney.co.uk as saying:

It is unlikely that the Co-op will maintain its ethical approach in the long run. History suggests that once a mutual bank is privatised it drops the focus on doing good to focus on doing well for shareholders.

The new Coop Bank management, fresh from having their last plan overturned, were this evening seeking to stave off an exodus of customers with promises that the ethical stance would not change. We shall see. But few would claim that ethics are safe in the hands of a vulture fund.

The Labour Party could well lose a sympathetic banker. Labour’s leader’s are already panicked about the possible loss of union funds as a result of the threat to the union link. Admittedly, Labour’s net liabilities at the end of 2012 were down to less than £2m from a peak in 2005 of over £27m, and they are less than the Tories net liabilities of almost £8m. Labour had loans from the Coop Bank of £34m between 1992 and 2010, at a cost of as little as 2.5%, and currently has (according to the Times an overdraft of £3.9m. Will it receive such favourable terms in future.

In addition, what of the ethical stance that has had such plaudits:

Kate Allen, Director, Amnesty International UK:

When The Co-operative Bank launched its Ethical Policy it was absolutely in the vanguard and we were absolutely delighted as Amnesty International to be working alongside the Co-op….

In 2001 the Bank adopted the principles that are in the Universal Declaration of Human Rights. It was the first financial institution to do that.

Jonathon Porritt, Founder Director, Forum for the Future:

In 1998 (when) the (Coop) Bank began to look in particular at the importance of climate change and not doing business with those who were leading the contribution to climate change….

I think for a lot of people working in the finance sector there’s still something counter-intuitive in turning down business and it is the clarity with which the (Coop) Bank has decided not to invest in companies involved in certain sectors over the years that shows the difference between its approach to banking and that of mainstream banking.

Harriet Lamb, Executive Director, The Fairtrade Foundation:

I think they were really among the first to say well look, let’s offer Fairtrade in the vending machines for all our staff and I think that was also the great thing about the Co-op Bank initiative. They did it themselves and then they also wrote to hundreds of companies and said look, we’ve shown it can be done; you can have Fairtrade coffee in your vending machines and staff will enjoy it and like it so we challenge you to follow the lead we’ve set.

9 Comments

  1. Rod says:

    A sad loss.

    Looks like credit unions are now the best option for personal banking.

  2. Robert says:

    It’s sad but the Coop got it self caught up in the PPI and the other messes of the banking industry.

    Labour bankers will struggle now to even keep it’s 30% and sadly it will be just another banks which was not as it sounded.

    Shame.

  3. James Martin says:

    Rod, check the Move Your Money website for ethical switching options. Luckily I live in a town covered by the Cumberland BS and I suspect they will be getting my custom very shortly after a long time with the now de-mutualised co-op.

    In wider terms, this shows two things I think:

    First, it is impossible to create an alternative economic relaity within capitalism without political change towards a socialist society.

    Second, the co-op movement, and in particular the Co-op Party have utterly failed to provide accountable contol over the over-paid executives that lead its largest institutions and who have acted no differently to any other self-interested bankers. In a sense this is hardly surprising given the Co-op Party is really one of the last bastions of the Blairites, but it does show that it needs a serious attempt to wrest control from these do-nothing MP sponsors and bring back actual and active mutualism to the movement.

  4. Rod says:

    @James M.

    Thanks for that. New bank account here I come.

    When I chucked in my LP membership I looked into joining the Cooperative Party, wanting to remain connected but distanced.

    But, like the LP, the upper-echelons of the Co-op Party resemble another branch of the Progress Party. That’s OK if you’re up for war-mongering and mismanagement of the economy, I suppose.

  5. swatantra says:

    Tischner is probably right in saying the Coop Bank was far too ambitious in wanting to expand so quickly by acquiring Britannia, and Lloyds TSB, the aim being to have more prescence on the High Street. But who goes into a Bank these days? I haven’t in 20 years; I do all my banking by phone and the hole in the wall.
    And Labour in Govt and out of Govt haven’t supported the Co-operative Movement as much as they could have. Hence we have more loan sharks instead of Credit Unions on the High Street. CU’s aren’t quite adapted for Banking yet, apart from those on very low incomes; too many restrictions on them. But that could change, if the Govt got behind CUs.
    James Martin confuses the Co-op Party with the Co-op Group like most people with little idea of the Co-op Movement. The Co-op Bank was a bit of an arms length set up anyway from the Co-op Group, and exercised very little democratic control on the Bank. The Co-op Party has no influence on the Retail or Banking Sector at all, although it is supposed to be the political arm of the Co-op Movement. It definitely is not a branch of Progress or a glee club for Blairites.
    The lessons to learn are 1. Find your niche, and stick to it and don’t compete with the large supermarkets, but focus on the convenience food sector, and be satisfied with just 11% of the market. 2. Again, with the Banks forget about expansion and growth and be content with a small section of the market, and don’t be bamboozled into taking on more than you can cope with.

  6. James Martin says:

    No swatantra, I am not confused re the differences between the cooop party and group/movement (as a longstanding member of both), but the fact remains that the party controls in all but name the group through organising where necessary to ensure that its supporters are elected to the local groups of the movement that in turn the bank was a supposedly subordinate part of despite its plc status.

    And the fact remains that politics has been progressively squeezed out of the coop party, and therefore the wider group, for many years now. What you are left with is then just bland statements about ‘ethics’ but no talk of alternative socialised/mutual economics to capitalism (talk of which used to be common). And what is worse, for all the talk of ‘ethics’ you have the Blairite nonsense of the coop party supporting foundation trusts in the NHS (and didn’t Mid-Staff’s show how wonderful that little break-up of centralised control was!) and academies in education.

  7. swatantra says:

    What is the difference between socialists and co-operators. Socialists believe that the State should deliver all services, whereas co-operators believe that there are some services that can be delivered by social enterprises or housing co-ops or worker co-ops or Academies, etc. So there is room, in a flexible Market. That is also the main difference between a large proportion of Labour Party members and Co-op Party members. I’m a member of the Labour Party and the Coop Party and the Coop Group Society, and also Bank with the Coop Bank. And I would encourage the development of more co-operatives and credit unions. The Coop Party has to come out of the shadow of the Labour Party and the Unions, and present new co-operative solutions for a new age. And we also encourage more participation from ordinary citizens in the decisions that Labour Socialists or the Unions would take on behalf of citizens, and affect citizens directly. It believes in empowering citizens a bit more than Labour, Socialists or the Unions.

  8. Robert says:

    If they follow the labour party we are all f*cked.

  9. Patrick Coates says:

    The Labour Party and The Co-op Party, were here before us and will be here after we have gone.
    I agree with most of you except Robert, can we know move on.

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