More trouble at the Co-op

published 27 March 2014

The Co-operative Group could cut its historic ties with the Co-operative Bank after the bank revealed a £400m capital shortfall. Losses have grown to £1.3bn for 2013, due to Payment Protection Insurance (PPI) mis-selling provisions and more bad loans.

The bank, which had to plug a £1.5bn hole in its balance sheet last year, is launching a cash call to make up the deficit. That would imply the Co-op Group has to raise a further £120m if it is to retain its 30% stake.

What the commentators said

It's "unlikely" the Co-op Group will retain its current stake for much longer, says Ian King inThe Times. With £1.2bn of debt, and already having to find £263m to help recapitalise the Co-op Bank, it is "unrealistic" to assume the Group can raise the £120m it needs to avoid dilution. Moreover, "what if [the bank] needs more capital down the line?" It seems "unwise" to bet against this.

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"There comes a time to say no' andnow is it," says Elizabeth Fournier in City AM. With an interim chief executive in place following Euan Sutherland's departure and "rumours of intense in-fighting", the Co-op Group has enough on its plate without giving its "naughtiest child" more cash.

The reason to retain its 30% holding was to keep the bank abiding by the co-operative movement's ethical values. But the provisions for consumer credit rule breaches and PPI mis-selling suggest "those days are already long gone". The Group should "hold on to its cash and let the black sheep of the family go it alone".

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.