Comments on the changes at the Co-op Bank

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Ismail Ertürk, Senior Lecturer in banking, comments on the changes at the Co-op Bank

If the agreed plan with the bond holders goes ahead and bond holding hedge funds convert their bonds into shares, the Co-op Bank is going to lose its mutual ownership structure.

This a historic moment for the Co-op’s customers and for the UK banking as the ecology of banking in the UK will be poorer in terms of alternative ownership structures.  But most importantly the hedge funds who will own shares in the Co-op are very likely to be driven by high returns on their investments not by long-term investment in customers.

The new accidental owners of the Co-op Bank do not have a track record of managing distressed banks and there is no guarantee that the Co-op’s fundamental problem of bad loans from the Britannia merger will be resolved without cost to taxpayers or customers.  The Co-op’s management team has not been successful in guiding the Co-op after the banking crisis of 2008 although the Co-op was positioned well and was strong.  What’s more, the current management does not give much confidence in guiding the Co-op in these difficult times because their earlier preferred option of forcing bondholding hedge funds to accept hair-cuts did not work.

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About Author

Ismail joined the School in January 1987, having worked previously for a merchant bank in Istanbul. Ismail is a regular commentator in the broadcast and print media. He has taught corporate finance, bank financial management and international finance on both the School’s MBA and Executive Centre programmes. His research interests are in financialisation and financial innovation.

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