MortgagesFeb 22 2017

Where to now for Co-op Bank?

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Where to now for Co-op Bank?
comment-speech

The news last week that the board of the Co-Bank has decided to put the lender up for sale cannot be a huge surprise to those who have been watching the steady demise of it over the last few years.

The board took the decision after realising it just did not have the capital to keep going as an independent entity.

The problems clearly date back to its disastrous acquisition of the Britannia Building Society, which contributed to a £1.5bn black hole in its finances, and the subsequent bad publicity relating to the departure of its chairman Paul Flowers, the 'crystal Methodist', who pleaded guilty to possession of cocaine, crystal meth and ketamine.

Retail deposits have fallen by over £5.8bn over the last financial year and the bank has suffered plenty of mortgage redemptions, amid competition from other banks.

The bad publicity over the dubious former chairman and the bank's spectacular mis-management cannot have done the business any good, and any last vestige of apparent ethical conduct must have gone out the window, with 80 per cent of the bank's equity held by institutional investors.

But the chief executives parachuted in at the time of the crisis – Richard Pennycook as chief executive of the Co Op Group and Niall Booker at the Co Op Bank – did a impressive job of saving the bank, and the group from complete implosion by engineering the debt for equity swap to plug the £1.5bn black hole, and subsequent £400m fund raising.

But anyone looking back at some of the reports conducted into the management of the bank over the years could have seen that it had disaster written all over it.

Sir Christopher Kelly highlighted that bank culture was in large part to blame for the failure – a willingness to accept poor performance and not to welcome challenge, and failure to listen to the external warnings.

So while Mssrs Booker and Pennycook gamely rescued the bank from oblivion, it is perhaps telling that weeks after the departure of one, and the announced departure of the other, it was decided to pull the plug. The question is whether anyone would want the Co-Op Bank, or even parts of it?