Co-op’s long funeral march

AS interim chief executive, Richard Pennycook has the unenviable task of leading the funeral procession of the Co-op Group, hoping that it reaches the kingdom beyond.

That it is still with us 170 years after its founding by the Rochdale Pioneers is largely due to the understanding of the other high street banks that agreed to new borrowing terms last year when the Co-op came close to breaching covenants on its mountainous borrowing.

If the banking consortium that includes Barclays, Royal Bank of Scotland and Lloyds Banking Group had been less than accommodating then the whole enterprise might have been placed into administration. Instead it looks like death by a thousand cuts.

The pharmacies and hundreds of retail stores have been earmarked for sale and one of the most valuable assets, that of undertaking, may also be ripe for disposal if the black hole in the Co-op Bank is to be filled.

The underlying problem of the Co-op Group is its governance. As a mutual it is meant to run in the interest of its members, the millions of loyal customers.

Instead it has been run like a pyramid selling scheme for socialists. Every layer of the group is on the take, in the shape of stipends and the apex of the main board, where vintage wine has long been on the menu and fat fees and payoffs have become a way of life.

Pennycook accepts that the Coop has ‘no God-given right to exist’ and this will be put to the ultimate test at next month’s annual general meeting that historically has been closed to the public. By then the regional boards, which control most of the votes, should have the forensic report of former Parliamentary Commissioner Sir Christopher Kelly and the governance report of Paul Myners.

The problem is that the regional chairs have a habit of casting their votes in their own pecuniary interests. The group board also has serious credibility problems. As the crisis at the bank unfolded inquirers were regularly assured that the Co- op Group sat on ‘ billions of pounds’ of cash from its other activities. That is hooey. The Co-op may have valuable assets but it is desperately short of cash.

It is by no means clear that it can prevent the bank from falling wholly into the hands of very capitalist buyers including the hedge funds, who could rewrite the articles of association pledging fealty to mutuality and ethical banking, in much the same way as they were added in the heat of crisis.

The Somerfield supermarket deal, engineered by the former chief executive Peter Marks, was an asset no other supermarket wanted. Its purchase was plain dumb, wasteful and aggrandising. If the governance reforms, creating a proper commercial style board with full decision-making authority are not approved then the national Co-op movement is finished.

Oddly enough capitalism might save the bank from its own inglorious errors. And ordinary depositors will be protected by the Government’s insurance scheme.

But we should prepare for the last post.

Dodgy dossier

BY unhappy coincidence the Clifford Chance report into alleged fraud by Royal Bank of Scotland’s debt recovery arm emerged on the same day as the Co-op’s problems were exhumed.

In headline terms the report by the City lawyers is a good outcome for RBS since it found the allegations made by the DTI’s entrepreneur-in-residence Lawrence Tomlinson to be unfounded.

Indeed, there are even dark suggestions that RBS might take Tomlinson to law over his allegations.

The problem is that the Clifford Chance report was paid for by RBS and therefore cannot be considered fully independent. And there is a history of financial organisations using such legal reports to create a degree of privilege for employees that innoculates them from punishment.

RBS may not have been guilty of fraud but there was some evidence of sharp practice, otherwise the bank would not be closing down its property arm West Register or changing its charging structures for companies in default.

No one comes out of this episode particularly well including Tomlinson, with his skewed dossier, or Trade Secretary Vince Cable who gave him the spurious authority to fire off a fusillade of half-truths.

Irish grit

FINALLY, some of the bad bankers at the heart of the financial crisis that brought banks on both sides of the Irish Sea to their knees have been found guilty of fraud. Two senior executives, Willie McAteer and Pat Whelan, have been convicted of fraud by mounting a secret share support operation for Anglo Irish Bank’s shares.

What a pity that prosecutors in Britain and the US failed to show similar grit in pursuit of wrongdoers.