The Co-op Bank is back in the news, this time with reports about its future ownership.
According to some newspapers, a number of leading American hedge funds are battling to get hold of the Co-operative Group’s £224m shareholding in the troubled bank, as apparently consideration is given to offloading the group’s share to one of the up-and-coming challenger banks.
Whatever the outcome, it is now clear that, apart from the regulatory due diligence, the Co-op Bank should no longer be allowed to call itself a mutual if any of these deals go through.
It has lost that fight in principle – there is no need to repeat its recent history here – and the idea of hedge funds getting hold of all of the bank’s equity and still regarding it as a mutual, with all that implies, would be nothing short of ridiculous.
If the two regulators – the Prudential Regulatory authority and the FCA – fail in their duty to protect consumers by sticking closely to the regulatory definition of a mutual, then the Treasury select committee or a concerned, even ambitious, backbencher should table a motion asking for clarification.
As we have said before, the Co-op Bank is not of systemic importance – it is not even central to lending to small and medium enterprises. Its most important relevance is that it is part of an alternative business model to the plc, a route that Lord Myners misguidedly tried to encourage the board to go down.
There is a suggestion that if the Co-op Group’s share of the ownership falls below 20 per cent that the bank will automatically lose the right to call itself a mutual. Why then the interest from such sharp US hedge funds? It cannot just be to get a toehold in the UK market, since it would be cheaper to launch another challenger bank which, if successful, would be free of any legacy.
It should be made as clear as crystal that under any future ownership of the Co-op Bank the legal structure of a mutual must be sacrificed.
