One hedge fund takes the money… as another one arrives

Today’s Financial Times reports that one of the US hedge funds involved in the Co-operative Bank restructure, Aurelius, has already sold almost all its stake in the Bank (don’t get too excited, it’s gone to another hedge fund, Perry Capital).  The cooperative world has frequently talked of the short-termism of the capital markets and here, it would seem, is a text-book example.

The FT dedicates a whole page to the recent story of the Bank and the Co-operative Group, a generally very fair feature which assesses what has been happening and why.  The paper also reminders its readers of recent difficulties among other cooperatives, including (as I’ve reported here) Rabobank.  FT journalist Patrick Jenkins quotes a Moody’s analyst Carola Schuler who puts current problems at cooperatives down to two core causes, corporate governance and capital allocation.

Actually, I think, Moody’s analysis is absolutely right.  The FT doesn’t go on to add (but I will) that both issues have already been identified as key issues in the International Co-operative Alliance’s current strategic work agenda.

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Toasted marshmallows and cooperative games – it can only be the Woodcraft Folk

A very cheery publication arrives through the letterbox.  It’s the latest newsletter from the Woodcraft Folk, Britain’s cooperative children’s and youth organisation.

I have to declare an interest, having once upon a time been actively involved both in my own town’s group and nationally in the work of the Woodies.  The newsletter brings news of how young people I knew as teenagers are taking the skills and cooperative values they learned then into their jobs, whether, to give two examples, as a UK diplomat at the UN or as a tree surgeon.  And there are tales too of recent Woodcraft Folk activities including the usual camping mishaps (“Wanting 160 eggs but accidentally ordering 160 dozen…”).

The newsletter announces a new Friends of the Woodcraft Folk scheme for those who want to support the organisation’s aims but for some reason don’t want to volunteer to play cooperative parachute games with seven and eight year olds in a community centre or eat half-cooked marshmallows round a campfire with teenagers whilst at the same time trying to sing The Mighty Song of Peace.  The Friends scheme sounds an excellent initiative – details at their website, www.woodcraft.org.uk.

Ian MacPherson

It’s sad news indeed to learn of the death of Ian MacPherson earlier this month.  He was a major figure in the Canadian cooperative movement but he also played a key role globally in cooperative circles where he will be remembered particularly for the careful and politically sensitive work he undertook in the drafting of the current wording of the seven Co-operative Principles, agreed by the International Co-operative Alliance in 1995.

The cooperative global bed is shared by some strange and curious bedfellows, but the fact that the ICA’s values and principles are so broadly accepted is testimony to the importance of this work.

There is a web page of very moving tributes to Ian posted here.

Heart attack: how the UK coop movement’s most important institution could be at risk

Remember the name Andrew Regan?  Let me remind you that he was the City-backed entrepreneur who in 1997 attempted to take over CWS (what is now the Co-operative Group) at the height of the carpet-bagging frenzy over building society demutualisations.  Aided by information fed to him illicitly by two coop senior managers (both later imprisoned) Regan might very nearly have pulled off his coup.  But the cooperative movement got its act together and fought back.  The end result, if you like, was Coop 1, City 0.

There will be those in the City and Wall Street who are discussing now whether this is the moment for the rematch.  Weak companies attract predators and the Co-op Group is undoubtedly weakened by recent events.  I talked recently in a blog about those ideological enemies of the cooperative business model who are gloating at the Group’s current misfortunes, but here I am not so much concerned about the gloaters as about those dispassionate (and more dangerous) money-merchants, those who will be looking without emotion at the Co-op Group’s balance sheet and seeing a business – or rather a conglomerate of businesses – which they believe could be made to be much more profit-generating.  They will see a business generally underperforming and not necessarily well managed, with excess fat which can be stripped away.  (For ‘excess fat’ read, among other things, all those idealistic member-relations people and those innumerable area meetings for members and those worthy grants to organisations like Co-operatives UK and the Co-operative College).

In other words, don’t believe for a moment that private equity and hedge funds will stop at the Co-op Bank.  The Group is potentially an even bigger prize.

What might the tactics be?  The Co-op Group’s complicated internal structure makes a building society-style demutualisation via a hand-out of ‘free’ shares to members very difficult if not impossible to achieve (although I fear that most of the seven million individual members of the Group would just at the moment seize such an offer if it were ever to be tabled).

Rather I think we can anticipate a long game being played. I think we can expect some of the Group’s businesses (funerals…  pharmacy… farming…) to be targeted.  Remember that there is a precedent: the Group has already sold majority ownership of the Co-operative Travel business and brand to Thomas Cook.  (Actually, it may make strategic sense to separate some of these businesses from the core retailing business.  But if that is to happen I would want to see the movement campaigning for the new businesses to be structured for the long-term as new autonomous cooperatives, not as short-term cash cows for private equity.)

But the core retailing business will be being sized up, too.  The Bank disaster will leave a long wake stretching several years hence, and the Group could be further weakened not only if its trading performance stays poor but also by Bank-related litigation.

So what is the response?  Firstly, I’d suggest, there is a need to look to ways to strengthen member engagement and stronger levels of accountability within the Co-op Group.  The governance structures may need to change but the aim must be to become more cooperative and democratic, rather than the opposite. Let’s borrow from Garibaldi and the Italians and campaign for our own cooperative Risorgimento.

And secondly, I’d suggest, there needs to be urgent work to develop major new financial instruments for larger cooperatives, accessing pools of capital which, whilst still expecting a return on investment, would be more sympa to the whole idea of values-driven cooperative enterprise.  If there is a need once again for significant capital in the UK cooperative movement, the instruments and the capital must next time be ready and waiting.

An antidote to the gloating and glee: coop event to discuss the way forward

‘Gloating’ – that’s the word which keeps coming to mind as I watch those in the City and at Westminster who are no friends of the idea of cooperative enterprise enjoy the chance to put the boot in.  The last few days have seen a gigantic outpouring of glee from these people.

The task of rebuilding Britain’s very strong tradition of values-based cooperative enterprise is one to be undertaken by those who do identify with the cooperative movement, and it is not surprising if at the moment morale is low.  That’s why I’m delighted to see details of the conference in Manchester on Fri January 17th, called by Co-operative Business Consultants (CBC) and backed by the Society for Co-operative Studies and Suma Wholefoods coop.

As the organisers say, the enemies of cooperation are having a field day.  Their aim, they say, is to bring together coop members and activists to consider ways forward.  Among other things, they hope to launch a Charter for accountable member control for larger cooperatives.

You’ll find details of the event (which is being held in Manchester) here.

Cooperatives and executive pay packages, part II

I raised the question in a blog last week (Nov 12) about what are appropriate levels of senior management pay in cooperative businesses.  Yes, it’s a controversial subject but one which I think needs to be discussed more widely.

You may have read that the Swiss are holding a referendum this Sunday to make it illegal for companies to have a pay differential greater than 1:12 between the lowest and highest paid employees.  We tend to think of Switzerland as a conservative country but in this instance – whatever the referendum result – the Swiss are certainly showing a preparedness to tackle the big issues.

Co-op Bank bondholders rung at home. Could the deal collapse?

Individual Co-op Bank bondholders are now being rung at home, to remind them of the importance of their vote on the Bank’s rescue package.  It’s a sign that the Co-op Bank deal is by no means done and dusted.

The revised Bank offer, announced earlier this month, imposes financial penalties on the 13,000 or so individual investors who hold ex-Britannia permanent interest-bearing shares (Pibs), the bank’s own preference shares or certain other Bank bonds. But nevertheless the deal has generally been viewed by professional advisers as the best that could be reached in the circumstances.

However unless investors can be persuaded to vote in favour (or, perhaps more to the point,  be persuaded that they have to vote at all) the deal will fall.  For each class of bond, a three-quarters majority is necessary.  So no wonder the phone lines are being used in an attempt to get out the vote.

The deadline is 6 December, although – to encourage a faster response from investors – the terms are more generous to investors if they vote by 29 November.  So we’re down to the last few days.

What happens if the votes don’t receive the necessary support?  The Co-op Bank would presumably have to accept what’s called Resolution – and that, in practice, means being nationalised or liquidated.  Savers would have the standard £85,000 protection;  bondholders could lose everything.

That’s not the only uncertainty. Former Labour minister Lord Myners has mischievously suggested that the corporate bondholders (led by the two US-based vulture funds) might be able to renege on the deal agreed and try to negotiate a new, better, deal (or in other words, an even smaller holding in the Bank for the Co-operative Group).  It is not clear to me whether this is a legal possibility, but certainly it can be argued that the Co-op Bank’s brand has at present been badly damaged by the Paul Flowers revelations.

Whatever happens, the Co-op Bank is effectively lost to the cooperative movement.  But exactly what will happen to a once-proud ethical bank is by no means clear and there are some nervous people in Manchester at the moment.