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Business Comment

James Moore: The Co-op’s treatment of it bondholders is nothing short of shabby

Outlook: The Co-op has a new chief executive and a new team but it hasn’t changed the way it acts

In the red corner: the  Co-operative, an organisation dating back to the 1800s, owned by its members and (at least in theory) run in their interest. In the blue corner: a couple of greedy US hedge funds and their tame investment bank, bent on screwing cash out of the former.

Care to name the goodies and the baddies? Except it isn’t all that easy.

The idea behind the Co-op might be a noble one, but the behaviour of the institution and at least some of those that have been running it has been some way short of its high-minded ideals, when you examine the recent history of the Co-op Bank.

Having run the thing off a cliff, the Co-operative now proposes to railroad bondholders into swapping their debt for equity in a recapitalised bank to be run by and majority owned by the same institution that mucked it up in the first place.

The Co-op, it’s true, has a  new chief executive, Euan Sutherland, and has installed a new team at the bank. But this doesn’t appear to have done anything to change the way the group conducts itself.

The suggestion to bondholders that they either accept the deal on the table or face losing everything, is evidence of that.

It’s true that the bondholders aren’t in an easy position. It’s still more or less possible to foresee the thing being wound up (as the Co-op has threatened). But in making such a threat, and acting in a high handed manner, the Co-op is playing a dangerous game and has done a fine job of alienating its supporters.

Enter the boys in the blue corner. Now, it’s a stretch to say that they are on the side of the angels. As often happens in these situations they’ve taken a punt on vacuuming up Co-op bonds while they’re cheap, with the aim of forcing a better deal so they and their wealthy clients can disappear off to Aspen for the ski-ing season.

But with sufficient clout  to put a spanner in the  works, that might now happen.

 The sad thing about this is that some of the sellers, who the hedge funds will have been buying from, are smallholders who trusted the Co-op and bought the bonds in good faith in the hope that they could be used to provide a small income.

Their action-group has warned that large numbers of these people – the sort of people the Co-op is supposed to be there to serve – have been dumping their bonds in despair. Perhaps at the worst possible time.

Still, for those that remain, we have to hope that the boys in the blue corner can land a few blows and belatedly the Co-op realises it’s going to have to engage.

Shabby doesn’t even begin to describe the way it’s handled itself.

Why give up Credit Suisse for a non-job?

Talking about institutions behaving badly, step forward UK Financial Investments, the body that is supposed to keep the Government at arm’s length from its vast investments in the UK banking industry made on our behalf.

As a such you would expect it to be whiter than white on matters of governance, not least to set a good example to the sector it is charged with overseeing on our behalf. 

The problems of that sector were in no small part caused  by flawed governance; over-mighty executives, myopic non-executives and so on.

To help prevent a chief exec from becoming too big for his boots (although it doesn’t always work) it’s good practice to have a separate, non-executive chairman to oversee their work.

Just not in the case of UKFI, whose incoming boss, James Leigh-Pemberton, will be assuming the role of executive chairman.

The appointment of such a big name is being painted as something of a coup for the Government. And it’s tempting to say such niceties don’t really matter, because UKFI doesn’t really matter; the real story here is why on earth he’s stepping aside as the UK chief executive of Credit Suisse for a non-job that will only pay a fraction of his earnings there.

All the same, the Conservatives made an awful lot of fuss about the importance of separating the roles of chairman and chief executive at the old Financial Services Authority while they were in opposition. They managed to bounce Labour into doing just that. Perhaps an enterprising shadow minister in Ed Balls’s team might like to pick this one up and have a bit of fun by returning the favour. Just a thought.

Place your bets on Barclays v the FCA

Antony Jenkins is taking a big risk in deciding to take on the regulators over Barclays Qatari fund raising. We learned yesterday that the Financial Conduct Authority is minded to impose a £50m fine over the affair.

Paying up could draw the line under a controversy that is going to otherwise dog the bank and threaten Mr Jenkins’s claim to be doing things differently –and while the penalty is substantial, it’s little more than a rounding error to a bank of Barclays size.

But it’s not only Mr Jenkins and his new Barclays which has its credibility at stake. As a shiny new regulator, a loss to Barclays before the Regulatory Decisions Committee would make the Financial Conduct Authority look very bad (just imagine the blood letting at the Treasury Select Committee). The consequences for the Serious Fraud Office (it’s also under investigation) of getting it wrong could be even more melancholy.

One of the two sides is clearly playing a dangerous game, and it isn’t yet completely clear which. But here’s the thing they both need to remember: if neither blinks and this does go all the way up to an appeals tribunal, they may both end up losing, whatever the result.