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.
The recent quizzing of the Bandits by the politicians has resembled a bunch of weak beardy teachers trying to deal with teenage gangsters without having the balls to take them on direct. Indeed the regulatory framework of financial services could be viewed as having the same characteristics as the culture of the education system (of the entire liberal democratic state?): meddling, didactic and bureaucratic but ultimately self-perpetuating and ineffectual. Fans of contemporary financial regulation will no doubt be aware of that guard dog minus balls and teeth “Treating Customers Fairly”.
Of course the reason for ineffectualness and its companion, cowardice, is always simple self interest. Whilst the Bandits may be jolly naughty boys who prey on the weak, the kind of money they generate as an industry is not something that can be apparently be done away with. And with Big Chief McWonga having at least attempted influence in the right places, the case for cynicism is overwhelming while the prospect of any meaningful action against this near criminal industry seem remote
One may though be equally cynical about some of the responses or lack of them from other sectors. First of all the Archbishop of Opportunism’s stated intention to put the Bandits out of business is as laughable as it impossible. Of course he could do as Jesus commanded and “sell all though hast and give to the poor” and at a stroke (given his personal and the Church’s wealth) end the need for anyone to do business with the Bandits. However I have yet to see any Christian organisation or individual do that so why should he break the mould? Similarly, credit unions and related “not-for-profit” lenders have not only failed to show a united front and step up to the mark, but have shown greater interest in charging the financially excluded for managing their affairs while grabbing as much funding as possible. But they are in the third sector and one could expect nothing less or more.
More bewildering is the failure of the credit card industry to do very much to counter the Bandits. As you will see in a forthcoming analysis (or you could find out for yourself) credit card borrowing is falling whilst Bandit lending is rising, which you would think would lead the industry to seek or retain (!) more customers rather than throwing increasingly silly 0% offers at existing customers. The Orwellian rigours of the credit reference agencies combined with the efficiencies of contemporary business processes mean its never been easier for lenders to keep borrowers under control, as the Bandits have most ably demonstrated. Yes there are one or two cards that have popped up aimed at those who can’t even get a Vanquis card, but their marketing has been half-hearted.
Of course, The Amateur Analyst is only too well aware that the customers of the Bandits are those who (whatever the Bandits may say) have no access to even a Vanquis card, let alone an overdraft or a tasty 0% offer but as McWonga has explaned, (as if it was something to be proud of), they turn down more applicants than they accept, and those they do accept they so comprehensively nail down in terms of repayment control, surely it cannot be beyond the wit of say, SAV credit to come up with a card that would offer a passably humane interest rate whilst incorporating a repayment process that de-risked the inevitability of assault by the chronically useless and the professional defaulter.
Meanwhile people already in so much trouble they have no other options are daily being done over by the Bandits. So with so much demand and so much profit what pray (if you’ll pardon the word) is to be done? Easy it’s like this….
Pass a law (remember them?) which limits the APR any lender can levy on borrowers and restricts any charges. This is the real problem for any Bandit victim and not the conditionality attached which allows the Bandits to clean out a victim’s bank account. We can all stop direct debits at the click of a mouse or with a phone call after all.
How about 50% APR and 2% for the service charge. Just a suggestion, but that’s high enough and more than I’d pay even if it meant starving to death.
Whatever, setting limits down in law would be relative simple, easy to understand and a piece of cake to enforce. Alright, it would require careful drafting, but in principle it could be done in a simple, swift, Private Members Bill which would be so popular not even the Lords would hold it up. And any lender that couldn’t make money at those rates? Well I’m sorry they shouldn’t be in business on good management grounds never mind any moral ones.
So how about it. Would any lefty Labour type, you know the ones that rant about equality and how the Tories don’t know the price of beans at Aldi, care to make their name and their party more electable by going for it? Would anyone?
The Amateur Analyst does not believe the ensuing rush will constitute a health and safety issue.
Lend me a tenner until the end of the week anybody?