In less than 18 months the Co-op banking group has gone from being the largest mutually owned bank in Britain to being taken over by three US hedge funds...
Three American hedge funds have now seized 70 per cent of the Co-op’s assets, reducing tens of thousands of shareholders’ and small investors’ bonds to junk value. With a customer base of 4.7 million people, linked to the wider Co-op group base of 7 million people, the only bank in Britain operating on ethical investment principles, having turned away £1.2 billion of unethical business since 1992, has now been devoured by US vultures.
Boom, the (almost) bust: the Co-op Bank’s rescue came at the expense of staff and customers.
The postmortem is still being carried out on how a £1.5 billion black hole emerged in the Co-op’s finances. With most of the senior boardroom executives and drivers of supposed expansion now gone – many with extremely handsome payoffs – it is worth reviewing what went wrong. In the background is the amazingly disingenuous position of the government: they publicly state they want to see the breakup of the monopoly position of the four big banks (Lloyds, Barclays, HSBC, RBS). The government suggests that the solution to this bank monopoly is the development of mutual banking. Mutual banking is not supposed to run the risks of unethical banking procedures, policies and criminal activity that have dominated banking worldwide since the 2007 collapse.
Looked at historically such unethical banking procedures, policies and criminal activity have been the norm – standard practice since the banks achieved a monopoly over finance and industrial capital in the early 20th century.
The true position of the government regarding the banks has been to promote, strengthen, bail out, acquiesce to their demands, and ensure that banking and finance is supported against all other interests in Britain. The government’s promotion of mutual banking was and is a smokescreen to camouflage their real intentions from the gullible who still think “we are all in this together” or that “austerity economics” works.
Far from promoting mutual banking, what they really were doing was signalling to their financier friends to attack and destroy mutual banking as they did with building societies in the late 1990s.
The Co-op was encouraged to merge with the Britannia Building Society in 2009 to expand its financial base. The Britannia had very close links with the trade union mutual and building societies dating back to 1856. But the Britannia and six other building societies were the target of predatory raids in the late 1990s during the destruction of building societies – when their assets were stripped and they were converted or absorbed into banks.
As far as the misnamed banking “industry” is concerned, building societies are juicy morsels ripe for eating. But how much cleverer to get a mutual bank to eat the building societies, rather than the high street raiders, and then devour the mutual!
The merger with Britannia was given the green light by the Financial Services Authority (FSA), which found nothing amiss with Britannia’s accounts. At the same time the Co-op was encouraged to take over 631 branches of Lloyds Bank, after it crashed in the 2007-8 banking crisis.
As the merger with Britannia developed, toxic debts totalling over £600 million were identified from loans geared to the buy-to-let housing market, sub-prime market scam etc. The FSA missed most of those debts. In fact it only identified between £30 million and £40 million in dodgy loans. The combination of dodgy Britannia debt, the Co-op choking on trying to swallow the Lloyds branches, poor management and inefficient computer systems, sent the overwhelmed Co-op into spiralling decline.
A gaping hole of £1.5 billion emerged in the Co-op’s accounts. Britain’s largest mutual was faced with bankruptcy, or begging for a government bailout as their non-ethical competitors had done previously, or seeking a market solution. Seeking a market solution was not really an option as the “market” had already seen an opportunity, a solution which suited them. Aggressive share and bond purchase by the US hedge companies gave them financial control of the bank.
The ensuing “rescue” has turned the Co-op into yet another unethical bank. Job losses of 10 per cent amongst the 10,300 workforce have been announced. 15 per cent closure of branches, 50 out of 324, are to follow. A shift to online and Internet banking will see the Co-op float not only on the Stock Exchange but very likely off-shore.
The 170-year tradition of the Rochdale Society of Equitable Pioneers, which established in 1844 their mutual banking opposition to capitalist banking, will be well and truly dead. How long will the ethical principles of the Co-op remain, now ownership of the bank has transferred from its 4.7 million customers to shareholders, tax exiles, finance houses and other con artists? How long can the “Co-op” name and mutual banking regulations be applied to the Co-op? The very basis of the bank has changed. Vince Cable, Secretary of State for Business is already being challenged under the Companies Act, section 76, to seek governance assurances from the new owners to uphold the Co-op’s ethical principles and rules – but this is a futile effort to disguise the truth
All the proponents of expanding the Co-op into a huge high street challenger to the so-called big four banks have now departed. The Co-op as was lies in ruins, occupied by the very forces the mutual banking ethos was supposed to see off. Is this an accident or deliberate plan by those ideologues of the so-called free market who saw the opportunity to destroy a national entity, with the largest customer base opposed to the culture of high street banking? In the last 18 months the Co-op has seen thousands of new accounts opened as banking customers fled from the big four banks and their dodgy practices. Now a coup by hedge fund managers, ably assisted by expansionist greed and self-interested management, has wiped out the refuge of millions of customers who are not enamoured of the corruption of bankers. The attack on the Co-op, a working class institution, is similar to the attacks on other national institutions and entities – the NHS, the BBC – which market capitalism also wishes to devour.
Worldwide banking, despite the 2007-8 crisis and subsequent crash, has seen two interesting phenomena: job losses and rising profits. In 2008, 795,000 workers were employed in banking. That figure has dropped by around 24 per cent in 2013 to 606,000 – RBS had 78,000 job losses, HSBC 59,000, Lloyds 31,000, Barclays 21,000. Lloyds posted half year profits of £2.1 billion in August, RBS £826 million for the quarter ending in March, and HSBC £5.4 billion in the first quarter of 2013.
The Co-op has been truly smashed, its assets grabbed – and a 170-year tradition in working class history and exercise of power different to capitalist ethos brought to an end. ■