Cooperative Bank

This article is about the UK bank. For other similarly named banks, see Co-operative Bank (disambiguation). For the general concept, see Cooperative banking.
The Co-operative Bank
Public limited company, subsidiary of Consumer cooperative
Founded 1872 (1872)
Headquarters 1 Balloon Street
Manchester
M60 4EP
, United Kingdom
Industry Financial services
Products Retail banking, commercial banking and independent financial advice
Revenue £3.5 billion
Website

The Co-operative Bank is a retail and commercial bank in the United Kingdom, with its headquarters in Balloon Street, Manchester.

The bank markets itself as an ethical bank, and seeks to avoid investing in companies involved in certain elements of the arms trade, fossil fuel extraction, genetic engineering, animal testing and use of sweated labour as stated in its ethical policy. The ethical policy was introduced in 1992.[1] In 2002, the parent company Co-operative Group Limited brought the bank and the Co-operative Insurance Society under the control of a newly incorporated holding society, Co-operative Financial Services, which became the Co-operative Banking Group in 2011. In 2013 the bank was the subject of a rescue plan [2] after it was revealed that it had a capital shortfall of about £1.5 billion. The bank will mostly raise equity to cover the shortfall from hedge funds, while the Co-operative group becomes a minority shareholder.[3]

History

The bank was formed in 1872 as the Loan and Deposit Department of the Co-operative Wholesale Society, becoming the CWS Bank four years later. However, the bank did not become a registered company until 1971.[4] In 1975, the bank became the first new member of the Committee of London Clearing Banks for 40 years[5] and thus able to issue its own cheques.

In 1974 the Co-operative Bank offered free banking for personal customers who remained in credit. It was also the first Clearing Bank to offer an interest-bearing cheque account, in 1982.


In February 2012, press reports suggested that the Financial Services Authority (FSA) may intervene to block the Co-operative Bank's proposed purchase of some Lloyds TSB branches, due to concerns about the bank's ability to integrate IT systems. It is rumoured that the FSA is particularly concerned that the Co-operative bank is still behind schedule in the integration of its IT systems with those of the Britannia Building Society, despite the fact that the merger took place in 2009.[6]

In July 2012 it was announced that the Co-operative Bank would purchase the over 600 bank branches from Lloyds Banking Group, which would be initially split from Lloyds under the resurrected TSB brand.[7] On 24 April 2013 the bank announced that it had decided against proceeding with the deal. The reasons given were the poor economic outlook in the UK and an increase in financial regulation requirements.[8] The Financial Times had previously reported that the Co-operative would require a £1 billion increase in capital to support enlarging the bank.[9]

2013 financial crisis

In March 2013 the bank reported losses of £600m. In May Moody's downgraded its credit rating by six notches to junk (Ba3) and the chief executive Barry Tootell resigned.[10]

Over the weekend of 15–16 June 2013 negotiations between the Co-operative Group and its regulator the Prudential Regulation Authority culminated in reports [11][12] that the Bank had a shortfall in its capital of about £1.5 billion, and that this would be filled by a procedure known as a "bail-in" scheme. A press release[2] by the bank issued on 17 June 2013 explained that the scheme will compel subordinated (also known as junior) bondholders to convert some or all of their assets from debt instruments to ownership (“equity”) shares of uncertain value which will be listed on the London Stock Exchange and a new fixed income instrument. The scheme contrasted with the rescues of other British banks in 2008 and 2009 when central government introduced new capital into the failed institutions. Full details of the rescue package will not be available until October 2013. Details of the outcome for small retail investors in the Bank were also left uncertain at the time of the June announcement, but it should be noted that there has been no suggestion that ordinary deposits in the Bank have been put at any additional risk by the rescue, and will continue to be covered by the existing compensation scheme. The bondholders may seek to reject the restructuring proposed, and an alternative option of the Bank of England taking over the ownership of the bank under the Banking Act 2009 special resolution regime has been considered.[13] It was later revealed that there was a £3.6bn funding gap between the value the Co-operative Bank placed on its loan portfolio and the actual value it would realise if forced to sell the assets.[14]

It was reported on 21 October 2013 that the bank will lose majority control of its banking arm after it was forced to renegotiate the bank's £1.5bn rescue with US hedge funds Aurelius Capital Management and Silver Point Capital that own its debt, and will now control 30% of the bank's equity, less than the 75% proposed in the original rescue plan.[3]

Membership

Despite its name, the Co-operative Bank is not itself a true co-operative as it is not owned directly by its members, but by a holding company which is a co-operative - the Co-operative Banking Group. Its customers may, however, choose to become Co-operative Group members and hence indirectly acquire an ownership interest in the bank, earning dividend on their account holdings and borrowing with the Bank.[15]

Unlike other co-operative banks, such as the Dutch Rabobank,[16] the Co-operative Bank does not have a federal structure of local banks, instead being a single national bank.

Ethical policy

The Co-operative Bank operates an Ethical Policy [17] which excludes the provision of any banking services to businesses which take part in certain business activities or sectors. These include a commitment not to finance "the manufacture or transfer of armaments to oppressive regimes" or "any business whose core activity contributes to global climate change, via the extraction or production of fossil fuels". The bank estimates that it has declined finance totalling in excess of £1bn since the policy was introduced in 1992.[18] The Policy is based on a regularly-renewed customer mandate in the form of a survey. In the 2005/06 financial year, whilst making profits of £96.5 million, it turned away business of nearly £10 million.[19]

The Policy only applies to the balance sheet of The Co-operative Bank. The Co-operative Asset Management investment funds in companies. [20] .[21] The division is in the process of being sold to Royal London.[22]

In June 2005, the bank closed the account of a Christian evangelical group (Christian Voice) because of its standpoint on homosexuality, specifically the group's "discriminatory pronouncements on grounds of sexual orientation". They said the group was "incompatible with the position of the Co-operative Bank, which publicly supports diversity and dignity". Christian Voice said the bank was discriminating against it on religious grounds.[23] Gay Times subsequently selected the Co-operative Bank for its Ethical Corporate Stance Award.[24]

Subsidiaries

Smile

Main article: Smile (bank)

The bank launched a separate internet-only operation known as Smile in 1999, which, according to surveys, has the highest satisfaction ratings among UK banks and has received many awards in recent years for customer service and online banking.[25] It has around half-a-million customers. Smile has its call centre based at a unique pyramid building in Stockport.

Britannia

In October 2008, it was reported that Co-operative Financial Services was in talks with Britannia Building Society with a view to sharing facilities and possibly a full merger.

Such a venture was facilitated by the passing of the Building Societies (Funding) & Mutual Societies (Transfers) Act 2007,[26] although further secondary legislation was required before such a merger could take place.

On 21 January 2009, Co-operative Financial Services and Britannia Building Society agreed to a merger, with the new 'super-mutual' being brought under the stewardship of The Co-operative Group. The proposed merger was subject to a vote by Britannia's members at their AGM at the end of April 2009.

On 29 April 2009 Britannia's members voted overwhelmingly in favour of the merger.[27]

In the short term, both Britannia Building Society and the Co-operative Bank continue operating their own products, branch networks and systems. All Britannia branches are due to be rebranded under the Co-operative name by the end of 2013.[28]

Independent financial advice

The Co-operative Bank withdrew its CIFA network in October 2011, and this was replaced by the Co-operative Banking Financial Planning Service, which is provided by AXA Wealth. AXA Wealth was also withdrawn, in April 2013. The Co-operative Bank has not replaced AXA Wealth.

Technical problems

In 2009, the Co-operative Bank received considerable public criticism from business customers for problems with the bank's internet banking service. It subsequently emerged that the service crashed when more than 130 users logged on simultaneously, and some customers were left unable to access their accounts for days.[29]

In 2011, some Co-operative Bank customers were left temporarily unable to use their debit cards as a result of IT problems.[30]

References

Further reading

External links

Template:UK banks

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