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Banned
Moody's just downgraded the bank on Wednesday and while I was looking through some of the figures I calculated a £1bn capital shortfall. For any normal bank, like mine, this wouldn't be much of an issue because we could just raise that kind of money without even breaking into a sweat, but the Co-op is much smaller and worse off. They don't have a profitable investment division that is able to bail out their failing retail bank like other UK banks.
The difficulty for Co-op is their terrible business model. It's very similar to Northern Rock, just without the 125% mortgages. Not only that but their risk assessment division is a pile of shit, they lend money to people who obviously can't pay it back because they are "community focused" rather than "profit focused". The Co-op say they are in the business to "help people" rather than make a profit, which is fine, but their version of helping is giving out loans to unsuitable people. This has left them with a very large hole in their finances because for every £10 they lend out only £9 comes back in right now.
People have been talking about a government bail out but given the bank's historical closeness to the Labour party, I don't see it happening. The government may guarantee the deposits of account holders (I expect they will) but I'm almost sure they won't bail out what many call Labour's bank. They will be put up for sale and someone like Metrobank will look into buying the profitable branches, the rest will go bankrupt.
Here's why the government (Conservative/Liberal coalition) won't bail them out:
"A note on political donations
During the year, an annual donation of £563,000 (2011: £533,000) was made to The Co-operative Party. In addition, £242,000 (2011: £234,000) was paid in grants to Co-operative Party Councils. The Group Board also authorised a donation of £10,000 as a contribution to The Co-operative Partys campaigning activities in advance of the May 2012 Greater London Authority and London Mayoral elections. In addition, a number of donations totalling £28,500 (2011: £28,500) (including in-kind contributions) were made to The Co-operative Party to support a range of activity including party conferences. The Co-operative Party reports donations to the Electoral Commission in accordance with its reporting obligations as a registered political party under the Political Parties, Elections and Referendums Act 2000.
The Group Board also approved the donation of £50,000 through the Labour Party to support the Shadow Chancellors office.
Furthermore, during the course of 2012, a number of donations were made to support various Labour Party events, including at a national and local level with a value of no more than £11,550. With 2012 designated by the United Nations as the International Year of Co-operatives, the Group has also supported a number of Parliamentarians who have undertaken study tours about the global co-operative sector, and these donations have been recorded in relevant Registers of Financial Interests."
From their AGM.
So what do people with more than £85k in the Co-op do? Get your money out and stick it into a safe bank like Lloyds, RBS, Barclays or HSBC. Forget about "ethical" banking or "community" banking of the likes that Co-op have been touting, get your money safe in a big bank with a robust balance sheet.
The solution is for Co-op to sell themselves for a nominal amount to another bank who will fill the £1bn shortfall, but they don't want to sell to a "profit focused" bank from what I can gather and are looking for a buyer who will continue their current (failed) business model. The management need to be fired now and they need to get their arse in gear over finding a buyer, otherwise there will be another UK retail bank going bankrupt over poorly performing loans.
The difficulty for Co-op is their terrible business model. It's very similar to Northern Rock, just without the 125% mortgages. Not only that but their risk assessment division is a pile of shit, they lend money to people who obviously can't pay it back because they are "community focused" rather than "profit focused". The Co-op say they are in the business to "help people" rather than make a profit, which is fine, but their version of helping is giving out loans to unsuitable people. This has left them with a very large hole in their finances because for every £10 they lend out only £9 comes back in right now.
People have been talking about a government bail out but given the bank's historical closeness to the Labour party, I don't see it happening. The government may guarantee the deposits of account holders (I expect they will) but I'm almost sure they won't bail out what many call Labour's bank. They will be put up for sale and someone like Metrobank will look into buying the profitable branches, the rest will go bankrupt.
Here's why the government (Conservative/Liberal coalition) won't bail them out:
"A note on political donations
During the year, an annual donation of £563,000 (2011: £533,000) was made to The Co-operative Party. In addition, £242,000 (2011: £234,000) was paid in grants to Co-operative Party Councils. The Group Board also authorised a donation of £10,000 as a contribution to The Co-operative Partys campaigning activities in advance of the May 2012 Greater London Authority and London Mayoral elections. In addition, a number of donations totalling £28,500 (2011: £28,500) (including in-kind contributions) were made to The Co-operative Party to support a range of activity including party conferences. The Co-operative Party reports donations to the Electoral Commission in accordance with its reporting obligations as a registered political party under the Political Parties, Elections and Referendums Act 2000.
The Group Board also approved the donation of £50,000 through the Labour Party to support the Shadow Chancellors office.
Furthermore, during the course of 2012, a number of donations were made to support various Labour Party events, including at a national and local level with a value of no more than £11,550. With 2012 designated by the United Nations as the International Year of Co-operatives, the Group has also supported a number of Parliamentarians who have undertaken study tours about the global co-operative sector, and these donations have been recorded in relevant Registers of Financial Interests."
From their AGM.
So what do people with more than £85k in the Co-op do? Get your money out and stick it into a safe bank like Lloyds, RBS, Barclays or HSBC. Forget about "ethical" banking or "community" banking of the likes that Co-op have been touting, get your money safe in a big bank with a robust balance sheet.
The solution is for Co-op to sell themselves for a nominal amount to another bank who will fill the £1bn shortfall, but they don't want to sell to a "profit focused" bank from what I can gather and are looking for a buyer who will continue their current (failed) business model. The management need to be fired now and they need to get their arse in gear over finding a buyer, otherwise there will be another UK retail bank going bankrupt over poorly performing loans.
