We had an open and constructive session recently at our annual Co-operative Congress on the current context around the Co-operative Bank. The strong sense from the wider co-operative sector is one of support for the practical action now underway to restructure the capital base of the Co-operative Bank, in partnership with those affected, in order to safeguard its operations, in line with co-operative values and principles.
Over time, we will also need to look at the deeper learning for us as a wider co-operative movement. This will take time, but the lessons need to be embedded precisely because if they are not, then over time, the circumstances may be repeated. The Co-operative Group has said that it will commission an independent enquiry, which is a welcome sign of openness.
What needs to be considered? I personally would set aside the issues that the media has tended to focus on, over political factors (who supports which political party) and whether bondholders want a better deal. Others of course may disagree, but as I see it, the first is probably froth – more important is whether those in power pressed for the merger of the Co-operative Bank and Britannia. The second is about legal rights and, to a degree, commercial negotiation.
In terms, then, of deeper learning, we could put these perhaps in the form of ten questions that merit exploring:
1. Was the coming together of the Co-operative Bank and Britannia Building Society, whether you call it a merger or a take-over, appropriately handled?
2. Were the true risks of losses identified? Following the merger, in the context of wider economic stress, should the potential losses that have now come to light been recognised at an earlier stage?
3. Were there weaknesses in governance or management capability or reporting that led to an avoidance of action to address the underlying issues?
4. Given the swift transition from challenger bank, with the proposed Lloyds TSB deal, to casualty bank, were there weaknesses in terms of organisational culture, post merger, at a governance or management level that took eyes off the ball, led to hubris or undervalued caution in strategic planning?
5. Has the model of membership for the Co-operative Bank as an indirect one through the wider Group been sufficient to ensure prudential customer ownership and control?
6. Have the interests of the different groups of members, savers, borrowers, investors, pension-holders and staff had due consideration?
7. Are there instruments for rebuilding member financial ownership over time of the Co-operative Bank?
8. Have the models for financing mergers and business expansion at the level of the Co-operative Group proved to be effective as a commercial strategy?
9. How far is the proposed ‘bail-in’ the consequence not just of past losses but also the demands of a regulator keen to raise capital ratios across banking, including mutuals that were neither recipients of taxpayer support nor structured to raise additional equity capital in conventional ways?
10. What was the role of the ratings agency in this story – positive or negative – and how far does the ratings industry understand co-operative and mutual models?
Looking forward, there are also some relevant points of learning, such as insights from overseas around customer-owned banks and how to operate as a co-operative with a minority external set of investors. But for now, the immediate and overriding priority remains the call of implementation. Anything else may simply get in the way. But when that is done, the reflection must start and considering the right questions is one way to prepare for when this moves forward.