How wonderful mutual banking is!

Analysts at Barclays have argued that the shortfall facing the lender may be as large as £1.8bn \”in a stressed case\”, which is much greater than previous estimates of £1bn.

\”The capital shortfall at the Co-Op Bank is likely to be sizeable,\” the Barclays experts said.

\”The key driver of the shortfall is the losses arising from the non-core corporate book, which consists primarily of UK commercial real estate exposures inherited from Britannia. We assume portfolio losses of 35pc in a base case and 50pc in a stressed case and base these assumptions on recent market transactions of comparable portfolios.\”

And they haven\’t got any shareholders they can sting for a rights issue either.

Oh dear.

7 thoughts on “How wonderful mutual banking is!”

  1. Without shareholders they should just reflate it Cyprus-style and take money directly out of the members’ accounts. I am sure Richard Murphy would approve.

  2. so is Britannia yet aqnother example of a former building society making stupid decisions after demutualisation? Why were they dabbling in the commercial property business?

  3. As Mervyn King pointed out at a House of Commons Banking Standards hearing on 6th March, mutual building societies do not have shareholders which means in effect that depositors are the shareholders. So the Co-op could do the same: tell depositors they are shareholders.

    And Vickers, Basel III, George Osborne, etc all get worked up about the alleged catastrophic increase in bank funding costs that would arise from raising banks equity to asset ratio from 3 to 4 percent. Meanwhile there are those mutual building societies managing quite OK with a 100 percent ratio.

    We live in Alice in Wonderland.

  4. Diogenes:

    No, it isn’t since Britannia never demutualised. Building Societies suffered just as much as retail banks did during the financial crisis – the Dunfermline failed outright while several others fell into the arms of the larger societies.

    The Co-Operative Bank is actually a plc. It just happens that its shares are 100% owned by Co-Operative Banking Group Limited, which in turn is owned by the The Co-Operative Group (the actual consumer co-operative bit). So it would be up to the Co-Op Group ultimately to inject more equity into the bank. They’ve already started down this path by selling their life assurance business to Royal London. They hope that their General Insurance business will follow but it is unlikely to raise anywhere near enough.

    They sell other parts of the Co-Op Group off although some aren’t in a much healthier state it has to be said – the takeover of Somerfield was as badly thought out as the takeover of Britannia. The bigger question is will they want to prop up the bank? It may be better for the rest of the group to simply sell off the loanbook and be rid of it.

    While the scope for mutuals to raise equity is normally extremely limited, if not non-existent, they often do have junior bondholders who could be bailed in. Various financial instruments such as Permanent Interest Bearing Shares and Perpetual Subordinated Debt are used by mutuals and co-operatives.

    In the case of the Co-Op Bank, they have

  5. Craig

    my point is that the mutuals did ok when they stuck to providing home loans….if Britannia moved into commercial property, as a result of a relaxation of the rules that stopped this happening in the good old days, then there was a failure of management and/or regulatory oversight.

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