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zomgbbqftw
Pay attention.
(05-10-2013, 05:01 PM)
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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 Party’s 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 Chancellor’s 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.
redlemon
Member
(05-10-2013, 05:09 PM)
Credit Unions run on a similar principle and most of them get on just fine.
zomgbbqftw
Pay attention.
(05-10-2013, 05:19 PM)
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Originally Posted by redlemon

Credit Unions run on a similar principle and most of them get on just fine.

Yes, but they don't have a delinquency ratio above 10%.
frankie_baby
Member
(05-10-2013, 05:19 PM)
Considering I have the princely sum of zero pounds in my account at the moment don't think I'll need to run opening an account somewhere else

Will be a shame if it collapses and could look very very bad for the coalition if they don't step in, not bailing out a bank just because of the companies politics would be very poor form
CHEEZMO™
Obsidian fan
(05-10-2013, 05:20 PM)
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My dad uses the Co-op. Hmm.
zomgbbqftw
Pay attention.
(05-10-2013, 05:21 PM)
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Originally Posted by frankie_baby

Considering I have the princely sum of zero pounds in my account at the moment don't think I'll need to run opening an account somewhere else

Will be a shame if it collapses and could look very very bad for the coalition if they don't step in, not bailing out a bank just because of the companies politics would be very poor form

They will bail out the depositors (in a sense) by guaranteeing 100% of deposits. They won't bail out the bank because they have a shitty business model.
Brera
Banned
(05-10-2013, 05:24 PM)
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I was looking forward to them buying Lloyds TSB branches.

Co-op have a good rep so it's sad to see them in trouble.
frankie_baby
Member
(05-10-2013, 05:29 PM)

Originally Posted by Brera

I was looking forward to them buying Lloyds TSB branches.

Co-op have a good rep so it's sad to see them in trouble.

You should buy some shares in them

yes I do know you can't
industrian
will gently cradle you as time slowly ticks away.
(05-10-2013, 05:34 PM)
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The Co-op is in trouble? Meh. I'll just buy my lottery tickets at the Spar instead.

Seriously though, bank troubles are never good. How long before people start a bank run and exacerbate the problem?
zomgbbqftw
Pay attention.
(05-10-2013, 05:38 PM)
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Originally Posted by industrian

The Co-op is in trouble? Meh. I'll just buy my lottery tickets at the Spar instead.

Seriously though, bank troubles are never good. How long before people start a bank run and exacerbate the problem?

In this case I would support people getting their money out of that bank. If it sparks a bank run, so be it. The management of the bank have consistently obfuscated their true position, they talked all year about improving their core tier one capital ratio and in the results they showed a decrease. They were told by analysts and and advisers the world over that their business model is shit. Lending money to people on the basis of their world/political views is a terrible business model.
zomgbbqftw
Pay attention.
(05-10-2013, 05:54 PM)
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Shares ended down 25% on the day.
Best
Junior Member
(05-10-2013, 05:59 PM)
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So should I move my money elsewhere? I'm only with them for the large student overdraft.
zomgbbqftw
Pay attention.
(05-10-2013, 06:07 PM)
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Originally Posted by Best

So should I move my money elsewhere? I'm only with them for the large student overdraft.

Well if you don't have any money there anyway it's probably no big deal. If you have a significant amount of cash then shift it to a more stable bank. I would recommend Barclays or HSBC, I think both do pretty decent student accounts.
avaya
Member
(05-10-2013, 06:08 PM)
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Seriously they outright lied to Lloyds regarding Verde.
frankie_baby
Member
(05-10-2013, 06:09 PM)

Originally Posted by zomgbbqftw

Shares ended down 25% on the day.

They have shares? Didn't realise
zomgbbqftw
Pay attention.
(05-10-2013, 06:12 PM)
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Originally Posted by frankie_baby

They have shares? Didn't realise

http://uk.reuters.com/business/quote...ymbol=CPBB_p.L

Preference shares.
zomgbbqftw
Pay attention.
(05-10-2013, 06:14 PM)
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Originally Posted by avaya

Seriously they outright lied to Lloyds regarding Verde.

Yup. Always found it hard to believe that Co-op would have the money to buy those branches. Wasn't ever sure why the government saw them as a potential competitor the established high street banks. Never made sense to me. Always seemed like a terrible business model.
avaya
Member
(05-10-2013, 06:15 PM)
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Even if TSB IPO's I can't see them surviving for long.
Karakand
named a GAFfer's kid.
Yeah. I said Holy Shit too.
(05-10-2013, 08:10 PM)
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Originally Posted by zomgbbqftw

Yes, but they don't have a delinquency ratio above 10%.

I believe the introduction of the credit union model was being used to contravene this drift into pure ideology from your OP.

Originally Posted by zomgbbqftw

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.

I would also add to the credit union example that your distinction above is simply false, no matter what your operation's ideological slant, it must still abide by market rules (i.e. make more money than goes out) or else it eventually ceases to exist. Charitable organizations are some of the most ruthless profit maximizers I've ever seen in my travels.

You also conveniently glossed over the damage done by the BBS merger, which as far as I know was not undertaken as some kind of noble, utopian community project.
Nevasleep
Member
(05-10-2013, 08:16 PM)
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What would happen to people who owe the bank, such as overdrafts? does it just get sold on?
zomgbbqftw
Pay attention.
(07-11-2013, 03:21 PM)
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So just to update everyone.

The Co-op has a £1.5bn capital shortfall, they are set to float the bank on the open market, I don't know if it means they will have to change their name. The Co-op management are still blaming BBS for all of this, but I have spoken to people who would know and they say that while BBS may have contributed to this position, there is no way that BBS had anything like a £1.5bn hole in its finances. This in addition to the fact that the Co-op are not willing to reveal which business are in deficit has lead many to believe that it is the Co-op group subsidiaries that have failed to keep up loan payments.

Essentially what a lot of people now think is that the Co-op bank lent money to other group subsidiaries, essentially lending money to itself (something that companies shouldn't do) and now those subsidiaries are performing poorly (the retail arm most definitely is) and unable to make the repayments so the value of those assets has been written down to reflect that. Since this practice comes with very, very tough questioning from the regulator group level management seem to be blaming the shortfall on BBS which, as I said, doesn't really make a lot of sense.

In all of this the Co-op bank sold lifetime ethical bonds to retail investors a few years back which will probably be defaulted on, so that sucks for them, and considering a lot of the owners are pensioners and "ethical" investors it will hit their reputation very hard.

The other solution would be for the Co-op bank to be dissolved and the assets sold to other banks with the shareholders (the Co-operative group) making up any eventual shortfall to cover customer deposits. In all of this the shareholders have not taken any kind of hit which is pretty disgraceful since they should really be the first group called on to meet any capital shortfall.

It all stinks IMO and gives us finance people a bad name! ;)
Scuderia
Member
(07-11-2013, 03:34 PM)
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Originally Posted by zomgbbqftw

For any normal bank, like mine,

Do you work for a bank, or did you just mean the one you bank with?
SteveWD40
Member
(07-11-2013, 04:01 PM)
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I used to deal with Co-Op's asset finance division, they made some fucking weird decisions over the years before they stopped lending all together.

They made grand claims about "ethical lending" (no oil drilling / mining kit for example).

Originally Posted by Scuderia

Do you work for a bank, or did you just mean the one you bank with?

Don't mean to speak for Zomg, but yes, he is one of the men pulling the strings we all dance too, can't recall which bank though but pretty sure he is in one of the trading divisions, therefore: rich.

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