Will Co-Op pull out of banking?

 
Lloyds branch facia Lloyds should not suffer too much from the Co-op's pull out from the deal - others may be

For Lloyds, the Co-Op's decision not to buy 631 branches with £25bn of deposits from it should not be too damaging.

The European Commission is forcing Lloyds to dispose of this operation, which is being rebranded as TSB, to promote competition, and that will still happen - by floating the separated business on the stock market.

But for the Co-Op and the banking market, the ramifications are much more serious.

The Co-Op's board yesterday decided that the new regulatory burdens being placed on banks and the weakness of the economy makes banking a much less attractive business.

It will now review its existing banking operations, under a new chief executive who arrives on 1 May, and I am told that it could decide to withdraw from banking completely.

That would be a huge blow to the Treasury and Bank of England, which had hoped that the Co-Op would become a powerful competitor to the big banks.

UPDATE 8:35 BST

To be clear, the Co-op isn't going to withdraw from banking tomorrow, so there is no reason for Co-op depositors to feel they are going to be left high and dry.

The outgoing chief executive, Peter Marks, says the Co-op will develop its banking operation over the long term.

But I understand there is a possibility it will get out of the business in an orderly way, after the new chief executive, Euan Sutherland, has had a chance to review it.

And here is one important reason why the non-bankers on the Co-op's board are nervous about getting bigger in banking: they are acutely aware of how the non-bankers at HBOS, Sir James Crosby, Andy Hornby and Lord Stevenson, were pilloried by MPs earlier this month for making a total horlicks of their bank.

Most important, however, is how the Co-op's withdrawal from the Lloyds deal highlights the tension between the government's twin ambitions - of making banks safer through increased and improved regulation and promoting competition.

The Co-op apparently took the view that it could not adequately cover the costs of the increased regulatory burden on banks, even when enlarged by the Lloyds deal, in the UK's worsened economic climate.

And here is perhaps the most telling fact. The Co-op was buying a bank from Lloyds that is far better capitalised than its existing bank, so it would actually have been strengthened, in a prudential sense, by buying the 631 TSB branches and £25bn of deposits.

But even with that huge incentive, it could not persuade itself that pressing on with the acquisition made commercial sense (and this from a co-operative, whose profit motive is less acute than most PLCs).

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +3

    Comment number 11.

    There are simply too many bank branches. My small town could easily lose 4 and it would still have 6 plus some building societies. Technology reduces the need for a physical presence on the high street.

  • rate this
    0

    Comment number 10.

    Firstly I dont beleive all this ethical nonsense about them. Some of the groups other business practices are very less than ethical I can tell you. They are also paid up memebers of a major political party.The Co oP Bank itself having recently been fined for not responding to PPI (yes they did sell them) complaints fast enough..As a LLoyds customer who was being forced into CooP I`m delighted.

  • rate this
    +19

    Comment number 9.

    As a Coop Bank customer I joined because of their values and felt uncomfortable at the Lloyds move - was it starting to act just like any bank? I hope the Coop doesn't pull out of banking - it's values compared to other banks still shine like a beacon!

  • rate this
    +5

    Comment number 8.

    Recently moved our accounts to the Co-Op because we were fed up with the big, greedy bankers running the so called big 4. The UK needs the Co-Op to remain in banking so we all have an ethical choice.

    Like others I do hope they stay.

  • rate this
    +5

    Comment number 7.

    The Coop has now generated a mega-crisis over its IT. Plan A was to shift all Coop bank IT to Lloyds. It will be very interesting to see if the Coop actually has a plan B. As allegedly democratic mutual Coop owning members it will be a great shock to us if we ever get so much as a hint as to how this debacle was generated.

    Than you very much Peter Marks for your outstanding stewardship!

  • rate this
    +26

    Comment number 6.

    The Co-op statement ends: "We remain committed to driving The Co-operative Group forwards under our clear strategy and, as part of that, we will continue to develop our Bank for the long-term, offering a real alternative on the high street with our strong, established brand and our reputation as a trusted financial services business".

    Or, they're not pulling out of high street banking.

  • rate this
    +1

    Comment number 5.

    The much admired, ethical Bank, the Co-op has decided to pull out of purchasing 632 Lloyds branches, in part becauseof the new regulatory burdens being placed on banks.

    What does that tell us about ill-informed politicians such as Cable, who wish to destroy the UK banking sector. And no I do not work in the financial service sector

  • rate this
    0

    Comment number 4.

    It's a shame this deal has tanked.

  • rate this
    +17

    Comment number 3.

    Hopefully they will not pull out. As a customer it's good to have one bank in the market with an ethical stance, something we need more of not less. However it seems that chasing "profit" is not just for the big banks with their ill-founded venture into PPI and it's apparent large profit margins.

  • rate this
    +1

    Comment number 2.

    Unless this is a negotiating ploy to gain some concession, the exit of the only bank with an explicit ethical background will be disasterous.

  • rate this
    +47

    Comment number 1.

    As a Co-Operative Bank customer I hope they do not pull out.
    They are a good bank, excellent internet and phone banking available all day every day and UK based call centre.
    The only UK bank with a proven ethical policy as well

 

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