Bernard Ginns: The Co-op can be a force for good in a rapacious sector

It has handed exceptional rewards to a small minority of people who have become rich beyond their wildest dreams.

But it has also heaped extraordinary debt onto the vast majority who face years of austerity as a result of the financial crisis that began in 2008 and continues to rage across the continent.

A small, good thing to come out of Europe is the ruling by regulators that Lloyds Banking Group must cast off 632 branches and £36bn of assets as a condition of receiving £20bn in state aid when it stood on the brink of collapse.

This creates the opportunity to create more competition, diversity and stability in the UK’s banking sector, which is dominated by colossal institutions that are too big to fail and which offer mostly nothing but poor service to both businesses and consumers.

The divestment business – codenamed Project Verde – has attracted interest from NBNK Investments, a takeover vehicle run by former Northern Rock boss Gary Hoffman, and The Co-operative Group, the retail and financial services group.

Others interested parties are believed to include American investment firm Sun Capital, Virgin Money, the bank arm of Sir Richard Branson’s Virgin Group and National Australia Bank, the owner of Yorkshire and Clydesdale Banks.

NBNK and Virgin Money are believed to have submitted bids for Northern Rock, the nationalised lender. Combined with the Lloyds assets, these would provide the heft to act as challenger bank to the high street giants.

The Co-op, based in Manchester and led by Bradford retail veteran Peter Marks, is in an interesting position. It came out on Friday and announced its intention to put in a renewed bid.

The Co-op operates a clearing bank of some 150 years’ standing. It holds £45bn in assets and has 345 branches, with just over two per cent of the current account market.

With the Lloyds branches, it would have more than six per cent of the current account market, the minimum size that the Independent Commission on Banking says is required to create a strong, effective challenger.

It could achieve this scale with one deal, not two, unlike NBNK and Virgin Money.

Importantly, the Co-op is an industrial and provident society, which if broadcast loudly enough could resonate resoundingly well with the general public, which by and large continues to revile bankers.

Societies take decisions based on the interests of their members, rather than shareholders, and members include both customers and employees so considerations for both can be easily aligned.

Societies can take decisions for the long term, rather than having to satisfy the rapacious investors of the City that demand constant profits to maintain share prices.

As a listed company, you could say that NBNK would be run for the benefit of its shareholders. As a private equity firm, you could say that Sun Capital would be run for the benefit of its backers.

We’ve all seen the mess that the plc and private equity ownership models have created over the last few years. Failed banks and over-leveraged zombie businesses being two obvious examples.

The Co-op, owned by 6m people across the UK, would be run for the benefit of its members. That should not be overlooked when the Lloyds board decides what to do.

A Lloyds spokeswoman said yesterday: “We are still on track to make an announcement at the end of this year in terms of where we are going with the dual-track process and whether we will announce a preferred bidder or an initial public offering.”

The financial services industry is at a turning point, as I said at the outset. We need banks, but they shouldn’t be run for the interests of the few.

The Co-op could provide a healthy and refreshing alternative in a sector that desperately needs change.

n The Government’s economic policy for the regions lacks logic.

The coalition scrapped the regional development agencies because they were unaccountable, wasteful and failed to close the North-South divide. I can see the reason in that.

But I cannot see the reason in the £1.4bn regional growth fund. Why is the Government handing taxpayers’ money to companies that are owned by wealthy people?

I put this question to the Cabinet Office last week. A spokeswoman said: “We’re backing projects that would be unlikely to happen without any government support, in order to create long-term jobs and kick-start growth in the areas where it is most needed. This means investing public money to leverage private sector cash.”

For every £1 the Government spends, the private sector invests at least £5 more, she insisted.