tag:blogger.com,1999:blog-8764541874043694159.post7388584290040637976..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: Stand By Your BankFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-8764541874043694159.post-35284929581960413402013-09-21T19:52:22.058+01:002013-09-21T19:52:22.058+01:00In reality the Co-op group seems to be behaving ra...In reality the Co-op group seems to be behaving rather like Ryanair. There is a generally accepted way of doing business where transactions and responsibilities are not restricted to the legal minimum, and then somebody comes along and deliberately tries to reduce their liabilities to that legal minimum.<br />The end result is usually disadvantageous to everybody but the perpetrator and eventually results in new legislation. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-39195584726314795152013-09-21T17:52:05.152+01:002013-09-21T17:52:05.152+01:00Dave,
Apparently it's even less clear than th...Dave,<br /><br />Apparently it's even less clear than that. The FSA thought that the Co-Op Group might qualify as a "mixed financial holding company", which would give the PRA powers of direction, but agreed to a 3-year waiver of Co-Op Group being officially designated a "mixed financial holding company", apparently in order to avoid complicating the Verde deal. That waiver remains in force even though the FSA has now been replaced. Something stinks round here!Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-71492648932403450022013-09-21T17:25:41.576+01:002013-09-21T17:25:41.576+01:00The situation with the co-op group is not quite as...The situation with the co-op group is not quite as clear as the article suggests.<br />The powers of the PRA to direct the co-op group to bail out the bank come from the financial services act 2012 and section 192B gives the treasury the ability to alter the definition of a "qualifying parent undertaking" in virtually anyway it feels necessary including removing any reference to it needing to be a financial institution<br />In the event of resolution things are even clearer since the Banking Act 2009 allows the parent holding company to be taken into temporary public ownership if this is felt necessary and the only conditions are that it owns a failing financial institution and the holding company is an undertaking incorporated in, or formed under the law of any part of, the United Kingdom.<br /><br />Davenoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-5041918430723554672013-09-21T13:58:16.951+01:002013-09-21T13:58:16.951+01:00It can. Members can invest up to £20,000 each as w...It can. Members can invest up to £20,000 each as withdrawable shares. And that's how the co-operative movement was built originally, on the foundation of its members' capital (the members of the Rochdale Pioneers each had to commit to contributing £5 in instalments - which would be the equivalent of a four figure sum today). There is a case for saying that the present crisis has its roots in The Co-operative Group's decision to discourage members from investing more than £1 and rely instead on external borrowing.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-38792380128656929552013-09-20T15:44:08.728+01:002013-09-20T15:44:08.728+01:00If these branded banks are not financially backed ...If these branded banks are not financially backed by their parent company could it not be argued that that is at least a little diseptive and misleading from the point of view of the FSA and Trading standards. What is the aim of the Branding in the case of attracting deposits and what is a the recipient supposed to make of a cheque with Tesco, Sainsburies or Virgin printed on it. The whole point of branding is to benefit from assosiation, and when it comes to confidence in Banking that is rather important.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-24553773295622442172013-09-19T22:41:48.968+01:002013-09-19T22:41:48.968+01:00Hmm. Maybe I should have a closer look at Beardy B...Hmm. Maybe I should have a closer look at Beardy Bank, then. I don't like the sound of that. Opaque and complicated governance with no clear responsibility potentially leaves the Government on the hook, as you say. We really need to have some rules on what are and are not suitable governance structures for banks.<br /><br />Most in-house banks seem to start off as arms-length deals but the retailers then take them over. I'm not clear why but I would guess it is because they are lucrative! Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-25204780756672973422013-09-19T22:25:23.072+01:002013-09-19T22:25:23.072+01:00My impression is that Virgin often doesn't con...My impression is that Virgin often doesn't control companies through ownership as such -- the group seems to often have only a minority stake -- but through brand licensing agreements, where they are a supplier to the subsidiary, who have to run the company in a "virgin way" in exchange of using the brand and presumably licensing fees. They are suppliers: the individual companies could notionally buy branding services from someone else. If I'm correct here, I can't see how you could have full responsibility. Why pick a particular minority shareholder or supplier?<br /><br />In the case of Virgin Money I couldn't find quickly what their share is exactly but some other guy has 45% and there's at least one other minority shareholder, and they want to float it, so I can see them ending with a minority share even if they may be just above 50% now.<br /><br />This eliminates contagion but the taxpayer is on their own in case of failure.<br /><br />On in-house banks of retailers I'm not sure the systemic risk is worth the benefits to staff or customers, compared to them having an arms length deal with a partner bank providing banking services linked with the store card etc. This limits the profits they can make from banking, but we do want that, grocers should keep to their trade.cighttp://commentisglee.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-91343560124650515622013-09-19T20:42:42.356+01:002013-09-19T20:42:42.356+01:00I actually think Virgin is a bigger problem than T...I actually think Virgin is a bigger problem than Tesco, because of its involvement in privatised utilities. The pressure for a Government bailout would be considerable if it got into trouble because of bad banking.<br /><br />I'm not sure how constructive it would be to ban retailers from owning banks. In-house banks are useful to staff and popular with customers. Might be better to extend the PRA's remit so that they can supervise and regulate non-financial entities that own banks. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-3304023571794489622013-09-19T20:32:39.273+01:002013-09-19T20:32:39.273+01:00Elliot,
yes, that is my conclusion. I don't ...Elliot, <br /><br />yes, that is my conclusion. I don't think the Co-Op Group's attempt to distance itself from its bank's fate is acceptable, really. It must decide whether it supports its bank, in which case it should engage with the bank's creditors to obtain their buy-in to a mutually beneficial deal, or it does not, in which case it either accepts Group 3's offer or it places the bank in resolution. The present situation is not good for the Co-Op Bank's creditors or its customers, and is doing the Co-Op Group's reputation no favours. The management team may be operating in accordance with current law as it stands, but it is difficult to justify their behaviour on ethical grounds. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-20395188925537730402013-09-19T20:26:24.554+01:002013-09-19T20:26:24.554+01:00Thanks for the detective work, the service on this...Thanks for the detective work, the service on this blog is amazing!<br /><br />The unholy mess is probably quickly going to turn into a full blow up, all these bondholders' groups seem to me to be rearranging the deck chairs on the Titanic. There's a lot of moving parts that can take the whole thing beyond salvation and it would be surprising none of them goes wrong.<br /><br />On the question as whether going forward non-financial groups should be banned from walking away from their financial subsidiaries, it's a tough one: while I agree you don't want Tesco to be able to walk away from Tesco Bank at the first difficulty, after having used their branding power in good times, do we really want a Tesco Bank gone big and bad to take down Tesco the grocery stores? It may be wiser to ban cross-ownership/branding, and require broad/public ownership of any sizeable bank. Virgin is another interesting case, as I have the impression it's done under a lightweight brand licensing model, where it's even harder to argue for "group" responsibility.<br /><br />Also glad the PRA is standing firm on the capital requirements, but they really can't afford to to otherwise: if they surrender here, for a relatively minor non-systemic bank, they will lose all credibility when it comes to be tough with the big boys.cighttp://commentisglee.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-82677658341445223502013-09-19T20:03:48.921+01:002013-09-19T20:03:48.921+01:00Thank you for the post: interesting and thoughtful...Thank you for the post: interesting and thoughtful, as always. But I'm not clear about what you want the Co-op to do now. Earlier in the piece you write that it's generous and dangerous to support its bank, even to the limited extent that the Co-op Board proposes. But then you go on, if I've understood right, to argue that it nevertheless should do still more. Obviously the Co-op has got itself into a dreadful mess; and it's fair comment to say, in effect, I wouldn't start from here if I were you. But is your conclusion that the Co-op should either provide more support or less, and that its current stance is an unsustainable halway house?Elliot Grantnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-40675737828851991692013-09-19T10:58:34.685+01:002013-09-19T10:58:34.685+01:00I'm interested in the difference between the b...I'm interested in the difference between the bond holders of banks backed by a financial conglomerate and banks like the co-op not backed by anyone (do any other such banks exist?). Nothing you present here should be news to a bond holder who did due diligence - unless that is they were led to believe that the group would stand by the bank by some public statement in the good times, which no doubt one of the groups of bond holders will find if it exists. \<br />\<br />Perhaps the co-op wants to have it both ways - pay lower interest rates on their bonds as if the group was behind it but actually wiggle off the hook when the reckoning was due. But if the group never gave any indication it would automatically bail out bank bond holders then I'm not entirely sure why the bond holders need protection, they should have known that the bank goes bust no-one would bail them out. TomShttps://www.blogger.com/profile/10229860292511050106noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-21797422131873727952013-09-19T09:53:54.697+01:002013-09-19T09:53:54.697+01:00If only the Co-op could tap its seven million memb...If only the Co-op could tap its seven million members, sorry owners, for more than one pound each...Anonymousnoreply@blogger.com