James Moore: Ethical banking is the only way to save sick man of the mutual sector

Outlook. Plus: Majestic lifted as wine tipplers move up market; Regulators' watch on execs will push up pay
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The Independent Online

Has the death knell been sounded for ethical banking? It's understandable why people are concerned about this as the Co-op Bank prepares to join the stock market because of the need to plug a black hole in its books.

Even though the bank is technically a plc already, operating as a subsidiary of the Co-operative Group, and even though the latter will retain a majority stake when the shares are listed, this is still a highly significant change.

No longer will the bank be able to be run in the interests of its customers; it will have to be run in the interest of its shareholders. A minority of them will be unhappy bondholders. Through a debt-for-equity swap, they are taking the pain of prior mismanagement, particularly the disastrous acquisition of the Britannia building society, which they never had a vote on.

So customers' views on dealing with nasty regimes or nasty companies don't count any more. They can't, because the bank's bosses will be under a legal requirement to put shareholders first.

The prevailing view out there is that Co-op Bank is going to change because it will have to.

But that view is flawed. If the Co-op Bank abandons its ethics it might just as well test out whether those "living wills" for banks that we've heard so much about actually work in practice.

Without its much-vaunted ethics what you are left with is a small bank with a lot of baggage trying to compete against four behemoths plus some new entrants which have either entered the market, or are preparing to do so, without the Prudential Regulation Authority holding them on the sort of leash you'd more commonly find on an ill-tempered pit bull.

The Co-operative Bank's ethics are actually completely aligned with its commercial interests because they are its unique selling point; what differentiates the Co-op from a Verde or a Virgin Money, an RBS or a Barclays.

Indeed, if it wants to survive as a newly minted member of the London Stock Exchange, it ought to be thinking about how to strengthen them.

If a consequence of its listing is a little management rigour that has previously been absent then so much the better for the future of "ethical" banking.

That's not to say that there aren't one or two people, or organisations, that might still have cause for concern. Management rigour might just cause a few questions to be asked. Such as why the Labour Party has been allowed to operate with such a substantial overdraft.

Co-op might be an ethical bank, but it isn't a charity, and it certainly shouldn't be a political piggy bank.

Majestic lifted as wine tipplers move up market

Raise a glass to Majestic, which continues to show that retailers can be successful even in an era of austerity by concentrating on some rather unfashionable business methods: employing well-trained, enthusiastic staff who make an effort to look after customers.

Yesterday's numbers weren't exactly barnstorming, but in the current climate the group's performance is still very creditable.

The retailer has benefited from a move upmarket by British wine drinkers, who once used to glug an ocean of plonk but have been pushed up the quality scale by the forces of economics. Wine drinkers have enjoyed little respite from the Chancellor, who has offered concessions to beer and cider as opposed to a tipple largely made overseas.

That's a bit of a shame, given that English vintners have been producing bubbles that match up to the world's best for a while now.

But it does mean that those who prefer the grape to the grain have had to become open to finer wines. There is little point spending £4 on a bottle any more because after Europe's highest rate of duty, VAT, bottling costs, and the retailer's margin, you'll be lucky if the actual wine you're drinking costs 40p. Spend twice that and the tax takes up a much lower proportion of the price. Of course, if you're going to spend £8 in an age of austerity you'll want to know that you're getting something worthwhile.

So you're much more likely to wander into a Majestic, where you can put yourself in the hands of one of its attractive young assistants, who'll probably have something on hand for you to try before you buy. You might ultimately end up with something costing a tenner. But that's what a good salesperson does. And your taste buds will thank them for it.

Regulators' watch on execs will push up pay

Legal & General has a finance director at last, but my what a struggle it was to get there. Mark Gregory, previously head of the savings business, has taken on the role after the insurer's first choice, former KPMG audit chief Oliver Tant, was deemed to lack the requisite experience by the regulators.

Closer scrutiny of executives by watchdogs is probably no bad thing, given the howlers committed by the generation of executives appointed when regulatory approval was little more than a formality.

But it does mean that the pool of potential candidates for any top job has now appreciably shrunk. As a result of that those who do tick the boxes will have little compunction about pointing it out to the remuneration committees that set their pay.

Many, even most, of the arguments made for the sort of pay packages enjoyed by top executives don't actually hold up to a great deal of scrutiny. You only need to spend five minutes flicking through David Bolchover's excellent Pay Check to see that.

However, one regrettable side-effect of the regulators' assertiveness is that they may now have created one that does: rarity value.

We can be sure executives won't be shy about deploying it in debates about their emoluments.