One direction

In the last issue I wrote about the background to Save Our Bank, why we thought there was something worth saving in the Co-operative Bank, how we felt we could achieve more by organising rather than leaving, and how our biggest challenge is overcoming the view that the Co-operative Bank is a lost cause.

Since then the resolve of campaign supporters has been tested.

In May the bank asked its shareholders to come up with £400m to fill a new hole in the balance sheet. They have succeeded but The Co-operative Group, which used to own all the bank, has been further ‘diluted’ from owning 30% to just over 20%.  This is dispiriting. We want to see a return to majority co-operative ownership of the bank and this is clearly the wrong direction of travel.

It’s not great at The Co-operative Group either. In his review of governance, Lord Myners complained that the board had failed to call management to account and was not in control. This picture was reinforced in a report on what went wrong at the bank by Sir Christopher Kelly, which concluded that the merger with Britannia Building Society in 2009 was the main cause of the massive £1.5bn hole in the bank’s balance sheet. Examples of decision makers being given incomplete and misleading information show that ethical practice in the bank fell short while it was still under 100% co-operative ownership.

Given all this bad news why should Save Our Bank supporters stick with the bank?

There are good reasons to believe that things could now start improving.

The bank can benefit by facing up to what has gone wrong. Arguably the allowances made in the accounts for past problems are generous: there is a good chance that things will turn out better. That’s precisely why the hedge funds bought into the bank and why the call for £400m was over-subscribed: they know the only way is up. We are looking for an opportunity to take the first steps in building a new customer shareholding in the bank, and I’ll be reporting in this column on our progress.

Now they’ve filled the capital hole, the management can move on from rescue to building the business. With the very public airing of bad management in the Kelly report, the spotlight is on them to deliver, and they are tied to the mast on ethics. The chief executive Niall Booker apologised to customers for past errors (not his errors he was quick to point out) and acknowledged that customers “joined the Bank for its ethics and values”. He went on: “…we are focused on refreshing our values and ethics, and we intend to talk to you, our customers, in the next few months with our proposals for doing just that.”

We expect a survey of customers to start very soon. We have met with the bank and we made it clear that supporters are worried that “refresh” could be used as a euphemism for “water down”.  The management and the new shareholders know that without a distinctive offer on ethics they can’t compete with the big banks. They are keen to reassure  supporters that past commitments on who the bank will not do business with - such as arms dealers - are not quietly dropped. We are urging them to go further. We want to see a positive commitment to working with co-operatives, charities and the renewable energy sector. After the payment protection insurance scandal we would support a move to include proper treatment of customers in the ethical policy. And pay too is an ethical issue. With Unite the Union, we called on the chief executive to reject a £1.7m performance bonus. We want to see the bank take a lead with a commitment to fair pay for ordinary staff and a rejection of the the bonus culture that has destroyed public faith in banks.