Another coop bank boss falls on his sword

This ring any bells?

“I fully understand the public outrage…  I wish to give a crystal clear signal on behalf of the bank and on behalf of the Board.  The Board deeply regrets that this happened and that this could have happened. It is all the more so because this type of culture and behaviour no way fits the standards and values ​​of a cooperative bank That’s why I decided today to resign as Chairman of the Board of Directors. “

No,  not our own Co-operative Bank.  This was the statement put out yesterday by Pier Moerland in resigning as head of the Dutch cooperative bank Rabobank over the massive fine levied for Libor interest rate fixing, the story I covered in my blog last week.

Not a good period in the cooperative banking sector at the moment.

The Co-op Bank and the Select Committee hearings: could the coop’s democratic governance be the next thing to be lost?

I have been watching television this morning.  More precisely, I have been watching the video feed from the Treasury select committee where former Co-op Group and Co-op Bank senior managers are one by one being hauled up to explain to the MPs what they think went wrong at the bank.  Today it was the turn of former Bank CEO Barry Tootell to face the questions.  Tomorrow the Bank’s former Chair Paul Flowers has his turn.  It cannot be something he is looking forward to.

The videos of past sessions remain available at the www.parliamentlive.tv website and provide the best evidence yet available of exactly what was happening at the Co-op Bank in recent years. It is definitely worth looking at last week’s encounter with Peter Marks, the Co-op Group’s recently retired CEO, for example, characterised by some acerbic interventions from committee chairman Andrew Tyrie.

One of the lines of questioning pursued today by the select committee was whether the Group’s and the Bank’s corporate governance was up to the job. There was more than a hint (particularly from the Conservative members) that the Co-op’s democratic structures and the role these structures give to elected lay Directors must have contributed to the Co-op Bank’s problems.  To his credit, Barry Tootell today robustly defended the Board composition at the Bank, defending the role of the non-executive directors whom, he said, had both helped and challenged him when he was CEO.  Peter Marks by contrast took a very different position last week, implicitly criticising the Co-op Group’s elected Board and arguing for corporate governance reform (one of the few times he and the select committee seemed in agreement).

It strikes me that it would be compounding a tragedy if, as well as effectively losing the Co-operative Bank, the present crisis was to lead the cooperative movement to weaken its democratic corporate governance structures. The City and its friends have in the past sneered at the role of lay directors (“a plasterer”, “a Methodist preacher”) at the Co-op Bank.  There is, however, no evidence that more ‘traditional’ boards at, say, RBS or HBOS managed their jobs any better.

How to get the balance right in cooperatives between elected non-executive directors and those non-executive directors brought in because of their professional expertise is an important question which I think urgently needs more discussion.  Without this, there will be a risk of a gradual slide towards cooperative boards increasingly made up of the usual type of professional non-exec.  It happened in the building society world many decades ago, and I don’t think it helped building societies remember their responsibilities to their members.

Can the Co-op Bank still legally call itself ‘Co-operative’?

Cooperative legal specialist Ian Snaith has raised the interesting argument in his blog that the continued use of the name Co-operative Bank, once it ceases to be majority owned by the Co-operative Group, could be legally questionable.

UK, European and international law sets out criteria as to what constitutes a genuine cooperative.  Ian’s view is that a plc which is only 30% owned by a cooperative body does not meet the criteria.  He also suggests that continued use of the name would be unethical.

He concludes his detailed review of the law with the comment:  “The new owners are welcome to choose a new name that expresses their ethical intentions and brand. There is no problem about making the bank sound “cuddly”. They can have an “ethical” board to try to keep the brand’s image. They can amend the Articles of Association. They must not say that it’s a co-operative when it isn’t. That is disreputable.”

There’s another interesting question linked to this.  The International Co-operative Alliance meets next week in Cape Town when it will adopt a new global brand for genuine cooperative businesses.  The logo, which is based on the letters COOP with the middle two letters interlocked, is intended as a universally recognisable way for the public to know that they are dealing with a business which meets the agreed international cooperative values and principles, including member ownership and one member one vote.  Will the Co-operative Bank in its new ownership form be able to use the brand? Logic would suggest that it won’t.

Coop bank difficulties… this time in Holland

As if one bad-news cooperative banking story isn’t enough for one week, the Financial Times reports today that Rabobank faces a regulatory fine of almost a billion US dollars.  Rabobank is a highly successful and well-capitalised Dutch cooperative bank with its roots in the farming sector.  The national Rabobank is effectively a secondary cooperative owned by a network of local cooperative banks across the country.  “In light of our cooperative mission, Rabobank elects to make the customer’s interest the starting point for its daily activities,” the bank’s website says.

The swingeing fine is for alleged manipulation of the Libor interbank lending rate.  In Britain, Barclays and RBS have also been fined for Libor manipulation.

I can’t help thinking that a billion dollars of Rabobank’s capital would have been mighty useful if it could have been invested instead in our own Co-operative Bank.

What the past can offer the future

Gloom and misery everywhere
Stormy weather, stormy weather…

The clouds have certainly been lowering recently over Manchester’s cooperative quarter, but let’s pick ourselves up, dust ourselves down, and see what insights the past can offer the future.  I mentioned a couple of weeks back that I had received a copy of Building Co-operation, the important new history of the Co-operative Wholesale Society/Co-operative Group which (with, let’s face it, terrible timing) has just been published.  My review of the book is in today’s edition of Co-operative News and is also available on their website here.

buildingcooperation-book_0

Ethical banking: so what else is there?

It’s the morning after the day before… and, particularly in the light of those posts appearing from unhappy Co-op Bank customers pledging to move their accounts, it seems natural today to ask what we have left in terms of cooperative and values-driven banking in Britain.

The short answer is that cooperative banking in Britain, unlike many other European countries, has effectively meant just the Co-operative Bank, originally established in 1872 to serve the 1000+ local consumer co-operative societies.  Elsewhere in Europe co-operative banking grew not from consumer co-operation but from what we would now describe as locally based credit unions. If you’re interested, you’ll find a piece I wrote in the summer for The Guardian on European coop banking sector (and there are some very big banks involved) here.

What Britain did have (at least until the wave of demutualisations following the Thatcher-era Building Societies Act) was a thriving mutual savings and mortgage loans sector.  The largest remaining mutual mortgage lender by a very long way is the Nationwide Building Society, of course.  As a footnote, the Nationwide was originally directly associated with the cooperative movement (it changed its name from the Co-operative Permanent in 1970).  As a result of Co-operatives UK’s wooing of the mutual sector,  the Nationwide has recent chosen to become a Co-ops UK member.

Triodos Bank has been an innovative player in Britain in relation to ethical investment for almost twenty years, since the parent Dutch bank took over a small Rudolf Steiner-inspired UK bank in 1995.  Triodos’s own roots are in the Steiner movement (or anthroposophy, if you prefer), although the bank dropped its formal links with the Steiner movement in 1999.  It is not cooperatively structured, and indeed its internal structure is complicated (I last wrote about Triodos in detail for The Observer in 2004).  Its shares are held entirely by a Foundation with the mission of protecting the original principles of the bank, but a form of quasi-equity (so-called ‘depository receipts’) is made available to both individuals and institutions.  Incidentally, a Dutch cooperative bank is the largest institutional shareholder in Triodos, with a 6.6% holding of depository receipts. Peter Blom, a Dutch banker, has been in charge since 1989 and there’s an interesting video interview with him where he discusses among other things Steiner’s influence and Triodos’s approach to money on YouTube.

The Charity Bank is owned by CAF, the Charities Aid Foundation (the “charities’ charity”).  It offers savings products but not personal banking.  Unity Trust, owned by trade unions and with a minority shareholding from the Co-operative Bank, offers banking for charities and the not-for-profit sector but not for individuals.

And last but not least is Britain’s growing credit union movement. Britain was a late developer in terms of credit unions (perhaps because of the reach of building societies) and not everything over the past twenty years has been entirely plain sailing but Britain does now have some established and strong credit unions, the largest of which offer basic personal banking.  I wrote earlier this year on credit unions for the magazine Choice, and you’ll find this article on my website here.

Taking everything into consideration…

Having filed my piece on the Co-op Bank, I belatedly get round to tackling the day’s post… only to find it includes a request for me to complete a standard customer survey form sent from a company called Optimisa Research on behalf, yes, of the Bank.  

It includes the question “How likely is it that you will still be a customer of The Co-operative Bank/Britannia in 12 months time?”, the choice ranging from ‘Not at all likely’ to ‘Very likely’, with another proffered option being ‘Don’t know’.

Good (or perhaps bad) timing, guys.  That really is the question of the day.