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.


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

    Comment number 91.

    The Co-op board are not fools

    They will not take on someone else's stupid behaviours!

    Talk about egg on Tory faces. What a laugh, the naughty banker spivs hoping to be rescued by the Co op?

    That goes deeply against the grain in the Shires. There will be much puffing and snorting in Saloon bars of Surrey

    Rescued by socialists!! Bye God, sir! Hand me my Jack Daniels and make it a double

  • rate this

    Comment number 90.

    No surprise really, and I think the state of the economy is just an excuse. Retail banking is extremely competitive. It's impossible to make enough money to cover the costs of a branch network without either (1) raking in commissions from (mis)selling insurance or (2) lending profitably to local businesses, which requires real bank managers who know what they are doing - not easy and not cheap.

  • rate this

    Comment number 89.

    Please Mr Sutherland don't abandon me.

    I've been a loyal customer since 98 & you've always treated me fairly, even when I was a financially reckless student. It would be a hideous irony that you withdraw from banking when I've finally got some financial stability in my life.

    Doesn't our 15yr relationship mean anything? Please don't leave me to the callous whims of an uncaring financial market

  • rate this

    Comment number 88.

    So the flip-side question is, will TSB be able to buy out the Co-op's banking operation?

  • rate this

    Comment number 87.

    It's also a shame the Co-op doesn't have an army of lawyers like the big banks do to stop a journalist publishing corporate and damaging rumour from a supposedly respectable news site and reporter.

    I don't mind debating whether or not they buy Lloyds, but the other bit abotu withdrawing from banking completely is very damaging for them. I assume you have proven sources?

  • rate this

    Comment number 86.


    "Labour's overspending destroyed the economy- check the budget deficit caused by their policies. The banking crisis tipped the economy over the edge"

    You seem to forget that MOST of the debt was due the banking bail out and not Labours mismanagement of the economy although it did play it's part. !!!

  • rate this

    Comment number 85.

    Some cracking comments here.
    Please review the last six years for evidence that even bankers aren't any good at running banks. Banking is hard and complex. We need SMALLER banks that don't all do the same thing.
    And the idea that banking can be sorted out by creating more branches is frankly insane. It wasn't branches that caused the problem! So this is fixing a problem that doesn't exist.

  • rate this

    Comment number 84.

    Robert you must stop making ill-informed comments. The board of the Co-op have made it clear why they pulled out of the deal. It is not as you have said "that they are nervous.......". It is because of the ever increasing and ever punative regulations being placed on the industry.
    Perhaps you could read the Boards statement and comment on that

  • rate this

    Comment number 83.

    It's a sorry state of affairs when a foreign government, tells our government to sell the banks that our government owns.

    Socialism, it's fantastic. Not!

    I expect the (privately owned) Bank of England will lose Billions,
    as will our Treasury Department, from all this government meddling. This is why we shouldn't of bailed out the bad banks, let alone nationalise them.

  • rate this

    Comment number 82.

    Just wanted to say, I worked for the Co-op Bank for 6 years and have worked for other banks since and the ethics of the bank go right through from top to bottom, from customers to staff and I have never worked for such a good company since. A credit to the UK Banking industry and a super employer, just wish I had never left! The Co-op really does put ethics before profit, unlike other businesses!

  • rate this

    Comment number 81.

    As a Co-op customer in Scotland I was disappointed with the deal has fallen through I was hoping for them to increase there Branch presence in Scotland. That said I actually have to applaud the Coop for not pursuing the expansion of the Banking division if they believe that it was unsustainable. Banks that put there customers first should be encouraged.

  • rate this

    Comment number 80.

    Yes Robert, another result of the whole sorry mess is now laid bare. Who on earth would want to enter the bear pit now? The cosy cartel is far too entrenched to take on - if not for financial reasons then for the huge power they hold over businesses and yes, over the government itself. It is far too late to put the Big Bang genie back in the bottle; or human greed for that matter. RIP Mrs T

  • rate this

    Comment number 79.

    @ Rebecca Riot - it's not a commercial bank rescue - the parts being sold off actually make LBG LESS profitable...

  • rate this

    Comment number 78.

    1 Minute ago
    As a satisfied customer of Smile I would hate it if they closed down. They provide a nice simple service, they do not try and sell my any "extras",
    Not often I say this but I am in complete agreement with you.

  • rate this

    Comment number 77.

    This is very funny

    A Tory led government relying on the Co op to rescue a commercial bank?

    Now that the capitalist banks have utterly failed perhaps it is at last dawning on the Tories that the Co op is a much more sensible way forward and a far more proper way to behave. And instead of the rise and crash behaviours of the Tory right wing. They are so very very wrong and now proven to be so.

  • rate this

    Comment number 76.

    As a satisfied customer of Smile I would hate it if they closed down. They provide a nice simple service, they do not try and sell my any "extras", they do not charge a monthly fee for the privelege of having an account there and they do not have the internet failures that the other bans have

  • rate this

    Comment number 75.

    The co-op quite rightly detected a ruse. There's always free cheddar in the mouse trap. Government will have to try again? I'm sure they'll raise The Titanic one day soon too?

  • rate this

    Comment number 74.

    Welcome back TSB! Good to see a merger which benefitted shareholders & not customers is now being demerged & will mean benefits to the customers! What next? Perhaps the Government will see success & start to nationalise all the utilities to benefit the taxpayer?!

  • rate this

    Comment number 73.

    Not in the Co-Op's statement when they talk about why they've pulled out.....

    ....the WEAKNESS OF THE ECONOMY......

    ....bt I don't suppose SLasher Cameron & the boy Gideon (our work experience Chancellor) are listening - after all their teachers at Eton told them they could do no wrong & that everything they do they get right because they're "special".....

  • rate this

    Comment number 72.

    An earlier article suggested the FSA were trying to kill the deal by introducing regulatory requirements that would have impeded the retail business, making the whole Co-op Group subject to regulation and forcing the Board to give power to non-elected bankers.
    It suggested the big boys were trying to keep the Co-op out. Did this disappear with the FSA or was it a factor in the Board decision?


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