Bang Goes The Crank Bank

The problems at every well meaning well heeled socialists favourite bank are far from solved, long in the making and the solutions proposed do not bode well for the future.

In fairness to the Co-op bank, it must be pointed out that they were the last of the banks to get into bother, their policy of acquistion was not necessarily a bad one in principle and the Verde cock-up was not entirely of their own making and might have solved some problems had it worked, though how a left wing bank thought about doing a deal with a Tory government attempting to de-facto re-privatise a rescued bank is another question.

Neither is the Co-op Bank’s much (and rather smugly for my tastes) advertised “ethical” stance at the root of it’s problems. The Amateur Analyst is not aware that ethical investing is any less risky than any other class of investment. Paradoxically, it was the Co-op Bank’s having to pay out £269m for mis-sold PPI which contributed to the capital shortfall, a situation which should never have occurred in a bank with ethics and the principle of mutualism at it’s heart.

Whatever, the problems at the Co-op Bank stem from four factors (in no particular order): 1. it’s size and lack of competitiveness  2. The Brittania,  3. Creaking IT systems and a failed attempt to sort them  4  Financial challenges at the Co-op group itself. Indeed  tThe Amateur Analyst believes that it is number 4 which is of the greatest significance for the future and may well prove the undoing of the proposed restructuring.

At the core of the plan to sort out the mess at the Co-op Bank is  the conversion of Bank bonds to Group equity. This is meant to be a good thing because the original proposal of replacing the bonds for bank equity on unfavourable terms was such a piss poor deal. Indeed the “improvement” has fooled many people who should have known better into thinking that it’s going to solve everybody’s problems. The FT reports (professional) analysts as giving the deal the thumbs-up because non-bank equity is seen as preferable to bank equity while campaigner Stephan Wilcke chirps that the bank has been “generous”. But should any organisation in financial difficulties be generous and just how good is the non-bank equity in this case?

You don’t have to look very far to find that the wider Co-op group itself is in trouble also. In the 6 months to June the group reported a pre-tax loss of £559m and will be paying out a dividend of exactly zero.

The co-op group has plans itself to restructure, and sell assets though it’s core food and pharmacy businesses may remain intact. I wish it well but if it were a listed company I would not be buying any shares.

So what of the future? One of the ground rules of this blog is that it will not make predictions, rather more honestly make speculations about the future. The speculation as regards the Co-op bank is that the proposed restructuring may well not deliver and we may see for years to come continual restructuring until a point comes when the Bank and the wider group are de-merged.  The Amateur Analyst believes this is what should be happening now, as  both pose a risk to the other.

Should such a de-merger occur then the bank will either be listed or wholly or partly acquired while the group’s core business of food and pharmacy will either suffer a similar fate or, (should key assets such as property be sold) be part of a new smaller food and pharmacy mutual business.

So much for speculation,  what is certain is that the eruption and  current deal to clear up the mess does not mark the end of the Co-op Bank’s problems, rather the end of the bank, and probably the entire “movement” (corporation?) as we know it.

 

 

 

 

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