The Co-op bank was the great hope for those seeking an alternative to bonus-obsessed banking. It claimed to be owned by, and acting on behalf of, its members, rather than slick-haired traders and hedge funds. Unlike its rapacious cousins in London, it refused to invest in “unethical” businesses and was based in Manchester, far from the hard-nosed glass and steel edifices of Canary Wharf and the City.
Its management saw the credit crisis as its big breakthrough moment – a marketing opportunity like none other to push the benefits of its mutual model. But they blew it. Rather than expand gradually, they favoured the get-big-quick option of bumper acquisitions, first buying the Britannia building society, and then an attempted bid for hundreds of Lloyds branches. Sadly for the bank, and the co-operative movement as a whole, Britannia was full of toxic debt: property and business loans that were worse than worthless.
The £1.5bn black hole finally emerged after a tardy Prudential Regulation Authority took a keener interest. Yesterday, an elegant solution was found – those mostly institutional investors who bought bonds in the Co-op will have them swapped for shares on the London Stock Exchange. They will take a “haircut” on their investments, but no public money will be needed. This is to be applauded.
Even so, the deal lobs a capitalist brick through the windows of mutuality. The Co-op now has City shareholders to worry about, amusing some corners of the Square Mile. But the Co-op story is only a tale of one bank’s vain ambition. It should not be seen as a critique of mutuality as a whole.
The success of partnerships like John Lewis, the growth of crowdfunding websites, even the victories of fan-owned German football clubs, prove that the mutual model, managed carefully, provides an appealing addition to the City’s capitalism. As numerous inquiries this week seek ways to stave off the next banking crisis, we need that more than ever.