Ho Yus. We need mutual banking we do

So it looks like the Co Op bank might be going tits up.

The ratings agency warned that Co-op Bank might need “external support” as a result of new writedowns on bad debts linked to commercial real estate and belated costs linked to its acquisition of the Britannia Building Society in 2009.

Hmm.

Moody’s calculates that the Co-op Bank’s “problem loan ratio” had increased by the end of last year to 10.9pc from 8.1pc 12 months earlier as it was hit by a deterioration in its commercial real estate portfolio.

Doesn\’t this just show that it really was all those greedy shareholders at fault in The City, wasn\’t it? That rampant short term greed for profits led to the banking system going off the cliff. Things would be so much better with smaller, mutual banks who just would never get into trouble at all.

As the Dunfermline Building Society showed. As the Co Op threatens to.

Worth noting something else: the Co Op has nowhere to go to get that necessary extra capital. You can\’t have a rights issue to your mutual owners…..

14 thoughts on “Ho Yus. We need mutual banking we do”

  1. Moody’s says it expects asset disposals and support from the Co-Op Group, but doubts if these would be enough. Subordinated and junior subordinated debt will probably have to be bailed in to meet capital requirements. Because of that, these were specifically downgraded further than the bank itself. Moody’s also expects to downgrade Co-Op again at some point.

    Co-Op has a large toxic loan portfolio (mostly inherited from Britannia building society) whose quality is deteriorating rapidly and against which it has inadequate provisions. And it is desperately short of capital – it admitted in February that it could not meet FPC requirements, and the failure of the Verde deal means it now has no easy way of raising capital (Verde would have recapitalised it to some extent). It’s in a mess, basically, but because it portrays itself as a nice safe UK retail bank bank” it played to the public’s hatred of commercial banks, so no-one noticed. Including me, I admit. I’ve only really looked at Co-Op in the last month, though I did know about the capital problem earlier.

    Personally I’d rather put my money in a nice safe casino bank.

    Moody’s statement is here:

    http://www.moodys.com/research/Moodys-downgrades-Co-operative-Bank-on-review-for-further-downgrade–PR_272729

  2. Isn’t this why the new “core capital deferred shares” thingy was invented, so mutuals can raise almost-equity capital? (I seem to recall reading that Nationwide was going to use this)

  3. You’re all wrong, just wrong!

    You see, I read this brilliant piece once by a brilliant UK tax expert and economist called Richard Murphy that showed me how banks create money and in the process their loan book out of thin air. What they do is simply credit an account for the borrower, thereby meaning that borrower has an equal sum on account. A neo-liberal capitalist running dog called Tim Worstall argued against him – something about 4pm, rules, laws of economics and physics etc – but he got well put in his place.

    Anyway, it occurred to me that there really is no such thing as a toxic loan because you can just reverse the process as easily as you set it in motion and make money disappear back into thin air. Richard Murphy hasn’t written about this yet, but I am waiting expectantly.

    P.S. The other great leader I have started to follow – you might not know him but his armed compound in deepest Somerset is so spiritual – has assured me the world will end in about two months time, immediately after the stock market mega-crash Richard Murphy is predicting.

  4. The old “Permanent Interest Bearing Shares” (PIBS) were a way for mutuals to raise quasi-capital from the markets.

  5. As mutuals often have more of their loans in property, they are more a risk after a property bubble.

  6. This will surely be dismissed in the Guardian as a capitalist conspiracy, to undermine mutual banking.
    There were so many people keen to see the Co-Op buy the Lloyds brnaches that were on sale, even when it became obvious that the Co-Op would be overstreaching itself.

  7. Guys, after the failure of Verde and a 6-notch downgrade by Moody’s no-one in their right minds would buy Co-Op CCDS or PIBS. Mind you, some people might not be in their right minds.

  8. Michael Jennings

    Capital markets exist so that businesses can raise capital. A lot of people would be helped by knowing this.

  9. Same old story of banks being over-exposed to the property market. But we can’t do anything to stop property values bubbling then crashing can we? The banks should join up with some really challenging land tax organisation and issue the threat: we won’t lend into this fucked- up situation until its been stabilised by LVT.

  10. @ #8 Frances
    But Co-op Bank could merge with Co-op Building Society (now renamed Nationwide despite the protests from Abbey National who had spent years marketing themselves as “the Nationwide Building Society” – the only time I have ever felt sympathy for Abbey National) who have the odd £billion of PIBS yielding 6%-ish. Of course any fool who didn’t realise Nationwide was really Co-op and bought one of their PIBS would be screwed

  11. john77

    Well, if Co-Op Group dumps its bank, as Peston thinks it will, I guess Nationwide could buy it at a nice price. If they are wise they will only buy the good bits, though – as they did with Dunfermline Building Society.

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