What are ethical alternatives if Co-op Bank is taken over?
By Margaret Taylor Personal finance editor
IN PUTTING the Co-operative Bank up for sale earlier this month, its management was attempting to shore up the bank’s balance sheet after its failure to return to profit following its ill-fated merger with Britannia Building Society in 2009. The capital injection should come as good news for the bank’s four million customers who have already seen their provider bailed out after a capital shortfall of £1.5 billion was uncovered in 2013.
The source of the latest capital injection could prove less appealing, though, with many of the Co-op’s customers – who have already tolerated part-ownership by a group of hedge funds – taking out its products specifically because the bank’s ethical stance is aligned with their own.
According to its website, Co-op Bank prides itself in “leading the way on ethical, environmental and community matters” and it even consulted its customers when drawing up its “unique ethical policy”.
Among its strict criteria, the Co-op will not lend the cash deposited with it to payday lenders, firms that extract fossil fuels and companies that engage in tax avoidance.
The Co-op stressed that any sale would not dilute this focus, with chairman Dennis Holt stating that “the bank’s ethical heritage and customer proposition will be central to our future considerations”.
Chief executive Liam Coleman added: “The board and the management team believe there is strong potential to progress building the retail franchise, using the strength of our brand, our reputation for strong customer service and our distinct values and ethics.
“In a market where there is little to distinguish many banking brands, we believe this continues to set us apart.”
However, as the identities of potential suitors for Co-op Bank are not yet known, neither are their ethical credentials. The Co-op may remain committed to its long-held principles, but if an incoming parent is not, what choices are there for customers who like their values reflected all the way up the supply chain?
A number of high-street names, some of which have been linked with a takeover of the Co-op, rank almost as well as it does on ethical comparison site The Good Shopping Guide’s rating of banks and building societies.
The guide scores providers on a range of criteria, including whether they engage in “dodgy lending” practices such as funding projects that are ultimately bad for the environment, having subsidiaries in tax havens and their own environmental records.
Of the high-street players, Leeds and Newcastle building societies score highest at 79, with the Co-op joining Allied Irish Bank and Coventry, Nationwide and Skipton building societies with a score of 74.
While all were deemed to do well at avoiding irresponsible lending, they each lost marks for falling short across other areas. Co-op Bank, for example, was marked down because it continues to make donations to the Co-operative Party, which in turn backs a number of Labour MPs, while Allied Irish’s ethical investment policy let it down, and Coventry and Skipton’s own environmental reports were deemed problematic.
At the opposite end of the spectrum, Barclays, First Direct, HSBC, NatWest and Royal Bank of Scotland each scored just 16 points, with the banks failing on every ethical measure apart from their own environmental policies.
TSB, whose parent Sabadell is said to be mulling an offer for Co-op Bank, scored better with 68 although it fell short on the guide’s lending criteria and in terms of its ethical investment policy.
Similarly, Clydesdale and Yorkshire Banks plus Santander – which are also thought likely to make a move for the Co-op given that their previous target, Royal Bank of Scotland’s Williams & Glyn arm, is no longer for sale – all scored around the 50 mark.
The issue for those committed to having an ethical bank account would be finding a provider that can service all their banking needs while also meeting their specific ethical criteria.
While three names – Charity Bank, Ecology Building Society and Triodos Bank – stand out in terms of ticking all the ethical boxes, none currently offer a current account.
This will change at the end of April when Triodos launches its ethical current account onto the market but as no details of the account have yet been released it is difficult to tell how it would measure up to the three currently being offered by the Co-op.
For his part, Triodos managing partner Bevis Watts believes the move gives the bank the “opportunity to take us from a relatively niche savings bank in the UK to offering a full banking service and it will help us appeal to a broader audience”.
“Offering a current account will mean that we can drive more positive investment towards areas such as social housing, charities and social enterprise, renewable energy, organic food and farming, and fair trade,” he added. Assuming its terms are attractive, could the account succeed in positioning the bank as something of a challenger too?