Cormac Hollingsworth is the director of New City Network
Is there no alternative for the members of the Co-operative other than a demutualisation?
Must they stand back and let the stock market decide whether basic bank accounts, prisoner bank accounts and the back office for credit unions be assessed on the basis of return on capital rather than return to community?
No, because an alternative lies in a a key principle of cooperative banking that the new management of the Co-operative Group are breaking: that of disinterested distribution.
Instead of flagrantly ignoring their principles, the Cooperative bank could avoid a demutualisation by engaging in a ‘private restructuring’ utilising disinterested distribution. The cooperative banking code defines disinterested distribution as: “— net assets and reserves should be distributed on winding-up according to the principle of disinterested distribution, that is to say to another cooperative body pursuing similar aims or general interest purposes”.
The cooperative alternative to demutualisation would be a two-stage process, involving a distribution of the branches and good loans to another cooperative bank, and then a resolution of the Britannia bad loans with the bondholders and any residual equity.
It goes without saying that there is no cooperative bank in the UK to receive this distribution, but there are any number of large, successful and profitable European Cooperative Banking Groups that could receive the distribution of branches and keep a cooperative bank in the UK.
There is still time for the membership to seek this disinterested distribution solution. But the coalition government cannot stand by and let this demutualisation happen. It used to delight in saying that the last bank demutualisation occurred under Labour. If they do nothing that honour will pass to them.
However, it was the coalition’s commitment to mutualism that gave the political will to drive the Cooperative Bank purchase of Lloyds branches. None of them realising that because of the FSA’s historical dislike of mutuals (unlike the Bank of England, which values their diversity), the PRA’s dogged determination to trip up the Cooperative buying an earning asset for 25p on the £1 that would have covered the hole meant that a restructuring of the Coop was inevitable.
The PRA’s actions guaranteed that it created a bank that must be restructured: one with a non-performing loan problem and no profits.
The government can’t intervene publicly because last year’s debate on regulation made clear that they believe that the regulator always knows best, but President Hollande is now with Mr Cameron for a few days at the G8, and Credit Agricole is a big cooperative bank.