A DEAL THAT WILL FILL NO ONE WITH CONFIDENCE
AFTER the series of scandals that have besmirched British banking recently, from rigging Libor at Barclays to the IT meltdown at Royal Bank of Scotland and money-laundering at HSBC, it would appear just the right moment to welcome a new, sizeable lender on Britain’s high street.
But the idea of trusting the Co- op Group, not known for its state-of-the-art customer services, with a 10 per cent share of Britain’s banking markets is not a great confidence-booster.
Lloyds Banking Group, which is selling 632 branches to the Co-op for a knockdown price of £700m, had little choice.
The sale was forced upon the bank by the European Union after state aid was pumped into the bank in 2008 following the disastrous Lloyds TSB takeover of Halifax owners HBOS. That deal gifted Lloyds a dominant near 30 per cent share of Britain’s current account and mortgage markets.
The track record of the new owner, which will now have more than 1,000 branches nationwide, does not on the whole fill one with confidence. Apart from anything else it had difficulties integrating its IT systems with those of the much smaller Britannia building society that it took over in the aftermath of the financial crisis in August 2009.
This time, the Co-op is seeking to avoid the same problems by piggy-backing on the established Lloyds bank IT system and will be assisted by Lloyds executive Paul Pester, who was recruited last year to run the branches earmarked for sale.
The extent of Lloyds’ continuing involvement should provide some comfort to customers who suddenly find their branches and accounts switched to the Co-op – without being asked first.
The knockdown price of £700million, half of which will not be received by Lloyds for several years, reflects the lack of appetite for any bank assets at present.
It also illustrates the desperation of Lloyds to get the surplus branches off its books and to escape from the grip of the Government, which holds a 44 per cent stake.
Chancellor George Osborne expressed warm support for the deal on the grounds that it is ‘another step towards creating a new banking system for Britain’. Precisely what kind of banking system is a moot point.
DESPITE its efforts to cultivate a reputation as an ‘ethical’ bank the Co-op has not been without its detractors. During the financial crisis it, like many banks, was forced to make write-offs on previously undisclosed holdings of toxic securities built around American sub-prime mortgages. Moreover, as banker to the Labour Party – with which the co-operative movement is affiliated – it allowed its political allies to run up a big overdraft.
The biggest drawback is the Co- op’s opaque ownership and governance structure. Described as a mutual, its real ownership is exercised through a series of unaccountable committees deeply involved in politics and running a series of other businesses ranging from grocery stores to funeral parlours.
The idea of such a nebulous enterprise owning a leading and complex financial institution will not provide great assurance to 4.8million new customers.