James Moore: Co-op banks on the new man at the top

Outlook The Co-operative Group appears to have woken up to the challenge its banking arm faces, announcing more high-profile hires yesterday. It has brought in Richard Pennycock from Morrison's as finance director and Richard Pym, the former boss of Alliance & Leicester, to chair its bank.

The latter makes a lot of sense: he ought to have learned a few things about fixing bad banks as chairman of the bad bits of Northern Rock that remain in Government hands. The problem he and his colleagues face is how they can source fresh capital.

The mutual structure is an enticing one for financial institutions. In theory, without shareholders, it ought to result in a better service for customers.

In practice mutuals have failed because, lacking even the limited oversight the City provides, they have often been run in the mutual interests of their directors, whose ambitions sometimes outweigh their abilities. When those ambitions run aground their core problem is that they can't simply tap the market for more. Their capital position is what it is. The only real cure for what ails Co-op's bank is the hope that sufficient retained earnings will be generated over time to fix it. Co-op may be banking on Mr Pym's appointment to persuade the regulators to indulge it with that.