AFTER missing out on re-claiming Northern Rock as one of its own, the mutual sector was given a huge boost when the Co-operative Group won the auction to buy 632 branches from Lloyds Banking Group.
Under European Union press-ure to shrink following its bail-out of Halifax Bank of Scotland, Lloyds picked Manchester-based Co-op as preferred bidder for the slug of branches, turning down a rival bid from new banking outfit NBNK.
Codenamed Project Verde, the branches are by themselves a sizeable chunk of UK retail banking. On their own, they are a similar size to Halifax, and come with 5.5 million customers and around £64bn of assets. Verde includes almost 40 Cheltenham & Gloucester and TSB branches in Yorkshire. Combined with the Co-op’s 342 branches, the mutual will have around a seven per cent share of the current account market and almost 1,000 branches.
Starting with the de-mutualisation rush of the 1990s, the trend in the mutual sector has gone largely in one direction – shrinking. Notably, none of those former building societies, such as Bradford & Bingley, Northern Rock, Halifax and Abbey National, survive as independent players. But the Co-op Verde deal will, in one fell swoop, create a very sizeable and credible mutual challenger to the high street banks. Crucially, it will be one owned by its customers, and in existence for their benefit.
“We are a people’s bank – mutually owned, with profits shared between members and also used to invest for the long-term,” said Co-op’s Bradford-born chief executive Peter Marks.
The deal was also welcomed by consumer action group Which? and the Building Societies Association.
Blackfriar suspects Lloyds’ biggest shareholder, HM Treasury, played an influential role in the bank’s decision to choose the Co-op. Chancellor George Osborne’s order to Royal Bank of Scotland this week, telling it to scale back its investment banking arm, demonstrated Government is becoming an increasingly vocal shareholder.
Mark Hoban, financial secretary to the Treasury, also gave a clear signal of Government intent when he spoke at the Building Societies Association’s annual lunch last month.
“As we continue to emerge from the financial crisis, the building society sector has a huge role to play in supporting our economic recovery,” he said. “We are committed to promoting mutuals and creating a more competitive banking industry.”
Much remains to be seen about finer details of the deal, which should be firmed up by the end of March. The price the Co-op is paying, the implications for staff and whether Co-op can successfully merge the branches are all key factors in convincing the taxpayer it is getting a good deal.
Let’s not forget, before it merged with Britannia in 2009, the Co-op was a banking minnow with just 90 branches. As Lloyds admitted, the “execution risk” around the deal is “significant”. Meanwhile, the Co-operative Banking Group is looking for a permanent CEO. Could that leave the door open for Yorkshire Building Society’s outgoing CEO Iain Cornish, who’s a dab hand at integrating acquisitions and a proven leader.
He’s stated his wish to remain in the mutual sector, but has since taken non-exec roles at wealth manager St James’s Place and Vanquis Bank, the credit card arm of doorstep lender Provident Financial. Blackfriar wonders if the Co-op could be a tempting move.