The group has today (4 November) detailed a rescue plan for its banking division designed to plug a £1.5bn hole in its finances.
As part of the plan, the Co-operative Group will invest £462m in the bank and become the unit’s largest shareholder with a 30 per cent stake. However, creditors, including several hedge funds, will own 70 per cent of the bank and invest the remaining £1.06bn.
The Co-operative Bank’s advertising has focused as much on its ethical lending and investment practices as it has on its products and services. Its customer base swelled in the wake of the financial crisis as customers looked for alternatives to the big high street banks.
The bank has taken out full-page advertisements in today’s newspapers with the headline “Ethical banking has always been in our DNA, now it’s in our constitution” a reference to the “legally binding” addition of an ethical code of conduct to the bank’s constitution.
Euan Sutherland, group chief executive of The Co-operative Group, says the group will continue to have a “significant influence” on the bank’s direction.
He says: “We have enshrined the values and ethics that lie at the heart of The Co-operative Group into the new rules that govern the bank.
“We have set up a values and ethics committee that will be chaired by a senior independent director. The bank will be what its customers expect of it – a fair, responsible and trusted bank that delivers great service to retail and small business customers, underpinned by the values and ethics of the Co-operative movement.”
In a further move to reassure customers it has not abandoned its proposition, the bank will also canvas them on social media and via direct mail early next year “on what our ethical policy commits us to”.
Meanwhile, the bank has also announced it will reduce the size of its branch network by about 15 per cent, which would see about 50 branches close. Sutherland told the BBC it would “significantly enhance” its online banking operation as a result.
The group’s perilous financial position derives from debts incurred as a result of the merger with the Britannia Building Society in 2009 and the cost of compensating customers mis-sold payment protection insurance.
The rescue deal is a renegotiation of the complex “bail-in” process announced in June.