The End of Co-operative Banking?

I don’t know if you have seen the Danny Boyle film 127 hours. Even if you haven’t I am sure you will be familiar with the story. It is the story of the terrible accident that befell Aron Ralston who when climbing in south-eastern Utah fell and trapped his arm. Stuck for five and a half days under a dislodged boulder he was forced to amputate his own right forearm with a sort of blunt Swiss army knife.

This may sound melodramatic but this is the way I feel about what has happened to the Co-operative Bank. I feel like someone has cut off one of my arms.

May 9^th 2013 will stay long in the memory for many co-operators. It was the day of reckoning for the Co-operative Bank. It was the day the great unravelling began, the day ratings agency Moody downgraded the Bank's debt rating to "junk" status. It said that that the bank was vulnerable to potential losses and warned that the bank may need "external support" if it could not strengthen its balance sheet.

In a massive piece of understatement the Bank said it was "disappointed" by Moody's decision.

The news preceded the resignation of chief executive, Barry Tootell, and the collapse of the bid to buy 631 branches from Lloyds Banking Group.

This unraveling has now ended with the enemy inside the gates. US Hedge Funds sometimes described as “vulture funds”, Silver Point Capital and Aurelius Capital Management now have significant stakes in the Bank. Presumably intending to do to us what they usually do with the distressed assets of developing economies.

Now Moody’s ever helpful in these matters say that the Bank will be forced to “take the axe” to costs. It is worth pointing out that the issues the Bank faces are not dissimilar to those faced by the rest of the banking sector and that had the collapse of 2008 not happened we would not know be talking about it. Or if the ludicrously low interest rate regime had not been in place ever since that has destroyed the margins in conventional retail banking.

Some Banks have had to be nationalised all have had to be recapitalised. So the environment for banking has certainly worsened dramatically. We also know that some of that crisis in the banking sector has been caused by bankers themselves.  By their ridiculous growth strategies and reckless lending of their taking on of risks and of products that they themselves did not understand in a mad greed driven feeding frenzy.

We had prided ourselves that we where different that the mutual sector or at least what was left of it had weathered the storm better than the joint stock banks. We encouraged people who had an ounce of ethics to “switch their money”.

Now we find according to no less than the ex CEO of the Co-operative Group and even the current chair that there is a crisis of governance at the Group.

I think we need to unpack these comments because governance has several elements to it. Clearly there is the structure of the organisation, is there something inherent in large scale co-operatives that makes them difficult to govern? Was there a healthy culture at the Group ie was there an open and respectful relationship between those who represented the interests of the members and the professional management? And what where the qualities of the key personnel, the senior executives of the Group and the Bank and the lay chair of the Bank and the Co-op Group?

Before we can answer these questions there is a review underway by Sir Christopher Kelly, Chair of the Kings Fund and former chair of the Committee for Standards in Public Life. His job is in looking at the trail of poor decisions that lead us to this situation “to look at the management structure and culture in which those decisions were taken; lines of accountability which governed those decisions; and the processes which led to them” and “To identify lessons which can be learnt to strengthen The Co-operative Bank and the wider Co‑operative Group, and the co-operative business model generally.”

Clearly we should wait until the results of that report which will be available at the Group AGM next May. In the meantime I am full of praise for the way; despite the dreadful hand his has been dealt, Euan Sutherland the current CEO of the Group has handled this situation.  There are nonetheless a few things I think that are now obvious.

Firstly that we should have no confidence in the advice from Group Chair Len Wardle or ex-CEO Peter Marks about what to do next. We should have stopped listening to them a long time ago. And it is inconceivable to me that Len could contemplate staying in the Chair until May he should have already gone.

Secondly a “Co-operative Bank” with a minority member’s stake maybe “ethical” in intent but it is evidently not, in my personal view, a Co-operative. And if it persists in using the name it should be asked to desist just as the brand Co-operative Travel which the Group sold to Thomas Cook has to disappear after a certain period.

Lastly of course I hope this amputation stops the bleeding and it protects the body of the Co-operative Group from any further liabilities.  It is sobering to remember that none of the demutualised building societies have survived the transition.

      

 

Wild Welcome for Co-op Students!

Co-op activists and thinkers will be hanging out together next weekend for the UK society of Co-operative Studies Conference at the beautiful Gilsland Spa Hotel near the village of Gilsland, half way between Carlisle and Hexham, very close to Hadrian’s Wall in Cumbria. At 700ft above sea level, the hotel commands spectacular views over the Cumbrian countryside. To the east of the Hotel are the heights of South Tynedale with the Pennines to the south. To the south west are the mountains of Cumbria and the Lake District and to the north are the rugged moors.

A pretty isolated place to find a Co-operative Hotel and Conference centre you may think. The Hotel itself been on the grand tour for many years famous visitors included Robbie Burns and Walter Scott when it was the Shaw Hotel and later the Gilsland Spa and Hydro but it came into the co-operative family when the Co-operative Wholesale Society (as the major shareholder) and a number of retail Co-operatives took over in 1902 and ran it as a convalescent home. Members of those co-operatives used the hotel for convalescence until during the First World War the hotel was taken over by the Military Authorities as a provisional hospital. Many soldiers were able to take advantage of the peace and quiet of Gilsland Spa to recuperate before being sent back to the carnage on the front line then during the Second World War it was used as maternity hospital.

This chequered career was revitalised in 1972, when the property was established as the Gilsland Spa Hotel and has been progressively developed as a family holiday centre. The ongoing investment programme has made all the bedrooms en-suite, with central heating throughout the hotel. The bars provide the ideal ambience for that relaxing drink or bar meal and the latest addition, the Orangery, allows it to offer superb wedding, conference and banqueting facilities. The Conference is supported by The Northern Region of the Co-operative Group who have a very close relationship with Gilsland.

Despite the bucolic scenery there is much going on in the co-op economy for conference delegates to chew over. There are keynotes from Chris Herries the very first woman Chair of Co-operatives UK, Eric Calderwood of Stirling University and Bob Yuill Deputy Chief Executive of the highly successful Scottish Agricultural Organisation Society. Topics for the weekend include important sessions on the future of co-op retail, developing growth strategies for co-op enterprises with case studies from the agricultural sector, lessons from a new business history marking 150 years of the CWS, as well as a roundup of the current state of the co-op sector. You can tell that the conference is starting to come of age because people want to add their own things to the agenda developing its own fringe.

These include the recently formed Students for Co-operation. In many parts of the world many of the services that students need as well as their accommodation is held co-operatively even in the USA the Harvard Co-op had a turnover last year of $45 million the 33,000 paid-up members received $856,000 amounting to a dividend of 8% on purchases its Harvard Square bookshop was voted the best bookshop in Boston. This is not unusual and yet here in the UK students are having a double whammy of higher fees and the squeeze of the private rented sector.  There is huge scope for co-operative solutions to the challenges students face and students in many parts of the country have made a start.

Another session that I am sure will be of interest to Morning Star readers is a session on Co-operators in the Spanish Civil War. Chaired by Ian Hewitt grandson of Nottingham volunteer James Feney and with contributions from historian Richardson and author David Ebsworth (the pen name of former T&G Regional Secretary Dave McCall) whose Agatha Christie style novel the Assassins Mark set in the Spanish Civil War ahs as its lead character s reporter from the great co-op newspaper the Reynolds News. 

There are also session covering life in a small one shop Co-op Society at Grosmont in North Yorkshire and the history of Co-ops in Cumbria, as well as more technical sessions covering Industrial and Provident Society law. Anyone who has even the vaguest interest in co-ops and lives between Carlisle and Newcastle will be welcome to drop in and will be sure to something to enjoy and find a great co-operative place to do it in!

Balance at the BBC?

Battling bias on the BBC is much more difficult than in the corporate press.  They do portray themselves as providing a spurious balance. The coverage of economic and business matters is the area of the media subject to more spin than any other and the BBC seem to fall for it all the time.

So there can be little surprise that BBC Economics Editor, Stephanie Flanders, is now off to work for the US’s largest bank J.P. Morgan. Is this by any chance the same J.P.Morgan managed by Jamie Dimon who met US regulators following investigations into whether they misled investors last week?

The US media reported that they could agree to financial penalties of several billions of dollars to pay back investors who lost money through transactions relating to mortgage-backed securities. Apparently a sticking point in the negotiations over a settlement centres on an admission of wrongdoing, which could open the bank up to a flood of lawsuits.
Is the the same J.P.Morgan that agreed to pay $920m to settle charges relating to the "London Whale" trading scandal? And in 2011, did they not settle similar charges relating to misleading investors about mortgage-backed securities with, the Securities and Exchange Commission? Agreeing to pay $153.6m in June and $296.9m in November.

So buying up Stephs ‘balance’ and PR skills may be a good move.

I see also that after his stroke Andrew Marr is back to smooch politicians. His bias is even more difficult to combat as his history films and books are promoted by the entire BBC machine with its incredible reach as a broadcaster and publisher giving them tremendous authority.  

Now I rarely agree with Charles Moore of the Daily Telegraph but when he wrote that Marr’s History of Modern Britain was, “ignorant and patronising” I had to let out a little cheer.  Its not just that Marr gets his facts wrong, the publishers paid out a "significant sum" in damages to Erin Pizzey after the book mistakenly linked her  to the 1970s terror group the Angry Brigade. Macmillan pulped thousands of copies and issued an “urgent” stock recall notice citing legal reasons.
Pity we cannot issue a similar recall notice for the omission of socialists, trade unions and co-operatives from the Building of Modern Britain. It is bad enough that current left wing ideas and campaigns are ignored by the BBC. Being written out of the future is bad enough but to be air-brushed out of the past is intolerable. Ken Loach was not the only one to find Marr’s defence of Mrs Thatcher’s and the swallowing of her odious ideology as distasteful.
Now Robert Peston, the BBC News’s Business editor, the man who bought down Northern Rock, has decided to give us his history of shopping. This is what Time Out calls history “written by the winners”. There is little or no analysis of the consequences of some of the changes we have seen on the High Street with Peston it is very much in the Marr mould of shaping the facts to fit the story.
Let me just give you a few examples of how by getting the facts wrong he distorts the true history of the period he describes. Firstly his assertion that Marks and Spencer was the first large scale retailer to launch its own brand. The Co-operative Wholesale Society (CWS) was making own brand products in 1876. Crumpsall Biscuits being the first.
Marks and Spencer’s was not formed until 1894. He suggests that M&S was the first to introduce own branded goods to escape retail price maintenance. The CWS did this far earlier using its Pelaw’s Pharmaceutical Works. In 1906 a group of patent medicine manufacturers decided to boycott co-op stores for paying a dividend on their products, which they saw as a price cut rather than the return of profits to members. The CWS responded by expanding the output from their Pelaw Drug and Dry Saltery Works, founded in 1902, thereby producing their own medicines to fight the boycott. This process was repeated with the famous Defiant Radios in 1933.
Dixons was featured for its innovation as a photographic retailer in the 1960s. The CWS had been selling cameras and photographic supplies to co-operatives through its Manchester, Newcastle, and London operations in the 1920s, and on a national basis from 1931. By 1933 the CWS was producing and marketing its own brand of photographic film.
He also claimed that Sainsbury’s opened Britain’s first self service store in Croydon in 1950. This of course can only be true if you ignore the first purpose built Co-op Self Service store opened by Portsea Island Society in 1948 and that there had been self-service departments within London Society stores even earlier.
The point is that you do not need competition and free markets to generate retail innovation but this does not fit the story so gets ignored. These may appear to be minor errors. But this is part of systematic blind spot on the role of the Co-op in our history. I am dreading the portrayal of the Co-op – or the lack of it in the First World War with next year’s commemorations.
The systematic ignoring of the positive role of trade unions and co-operatives in our past helps to deny us a possible role in the future and needs to be challenged.