If you think the preceding post calls for a better type of bank and believe the Co-operative Bank, alas, you are mistaken. The difference is simply in the degree not the essence. The Co-operative Bank is a relatively small and “conservatively” run bank that has promoted its ethical business practices.
Former Co-op Bank chief executive Neville Richardson’s left the bank in 2011 with a package worth £4.6 million, including a £1.4 million payment for ‘loss of office’, and the same amount as ‘compensation’ for leaving. The banks financial downgrade to “junk” status by Moody was mainly based on the deterioration in the performance of the loan portfolios the Co-op Bank acquired with its takeover of the Britannia Building Society in 2009 when Richardson was chief executive of the Britannia at the time of the deal. Like any other business,it has to beat the competition, make profits and accumulate capital. Large institutions like local councils have a fiduciary responsibility to not leave taxpayers’ money in a bank where there are any questions about its solvency.
It looks as if the Coop Bank's difficulty has arisen from "loan repayments" being less than expected, i.e some of their loans not being repaid in full or on time. I would think that there are many businesses and people who would love to have a loan from the Coop Bank. The trouble seems to be that it is having to use the funds it has to increase its capital rather than to make loans. The Co-operative Bank unveiled a rescue plan to tackle the £1.5bn hole in its balance sheet. Most of the capital to be used to plug the hole will come through a "bail in" - a process where bond holders will be offered shares in the bank.
The deal will result in a stock market listing for the group. Many will argue that the culture and practices of the bank are bound to change once its shares are owned by commercial investors. In general, the bank will be more focussed on making profits because of the "need to generate an appropriate return on equity". The bank has always focused on making a profit, that's what co-ops do: it's just a question of who gets the profit. The capital is in the hands of the capitalists, and the bank needs capital to keep going.
An estimated 15,000 retail investors, many of them pensioners, who hold Co-op bank PIBS (permanent interest bearing shares) and preference shares stand to lose at least 40% of their investment plus a large chunk of their income if the plans proposed by the mutual parent, Co-op Group, go ahead. Dividends on the PIBS and preference shares have already been suspended, leaving thousands desperate to know how they will survive. Many are dependent on this income which ranged from around 5% to as high as 13% a year, to supplement their pensions. Until now, PIBS have been regarded as relatively safe – nothing like as risky as shares. As capital issues emerged at the Co-op, the price of its bonds began to fall sharply, hitting the small investors. The PIBS now trade at 60p compared to their face value of 100p and the 160p they were at their peak.
Ethical concerns do not come before business.
Former Co-op Bank chief executive Neville Richardson’s left the bank in 2011 with a package worth £4.6 million, including a £1.4 million payment for ‘loss of office’, and the same amount as ‘compensation’ for leaving. The banks financial downgrade to “junk” status by Moody was mainly based on the deterioration in the performance of the loan portfolios the Co-op Bank acquired with its takeover of the Britannia Building Society in 2009 when Richardson was chief executive of the Britannia at the time of the deal. Like any other business,it has to beat the competition, make profits and accumulate capital. Large institutions like local councils have a fiduciary responsibility to not leave taxpayers’ money in a bank where there are any questions about its solvency.
It looks as if the Coop Bank's difficulty has arisen from "loan repayments" being less than expected, i.e some of their loans not being repaid in full or on time. I would think that there are many businesses and people who would love to have a loan from the Coop Bank. The trouble seems to be that it is having to use the funds it has to increase its capital rather than to make loans. The Co-operative Bank unveiled a rescue plan to tackle the £1.5bn hole in its balance sheet. Most of the capital to be used to plug the hole will come through a "bail in" - a process where bond holders will be offered shares in the bank.
The deal will result in a stock market listing for the group. Many will argue that the culture and practices of the bank are bound to change once its shares are owned by commercial investors. In general, the bank will be more focussed on making profits because of the "need to generate an appropriate return on equity". The bank has always focused on making a profit, that's what co-ops do: it's just a question of who gets the profit. The capital is in the hands of the capitalists, and the bank needs capital to keep going.
An estimated 15,000 retail investors, many of them pensioners, who hold Co-op bank PIBS (permanent interest bearing shares) and preference shares stand to lose at least 40% of their investment plus a large chunk of their income if the plans proposed by the mutual parent, Co-op Group, go ahead. Dividends on the PIBS and preference shares have already been suspended, leaving thousands desperate to know how they will survive. Many are dependent on this income which ranged from around 5% to as high as 13% a year, to supplement their pensions. Until now, PIBS have been regarded as relatively safe – nothing like as risky as shares. As capital issues emerged at the Co-op, the price of its bonds began to fall sharply, hitting the small investors. The PIBS now trade at 60p compared to their face value of 100p and the 160p they were at their peak.
Ethical concerns do not come before business.
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