Wednesday, 15 February 2017
Co-op Bank goes down, but who is to blame?
I'm sad that the Co-op Bank, with which I've had an account for may years, is giving up in its present form and seeking a buyer.
Many people, when they read of its demise, will immediately think of, and blame, its inadequate former chairman, the Non-conformist minister Paul Flowers, who was later found to have drug problems and so nicknamed Crystal Methodist. It is easy to conclude that mutual ownership is not viable for serious businesses as amateurs on the board are not up to the job.
But it is universally agreed that the Co-op Bank's troubles began with the takeover of the Britannia Building Society in 2009. True the Co-op was probably over-ambitious, but it is too easy to forget that the take-over was given the green light by the privately owned giant accountancy firm KPMG. Later, too late for the Co-op to back out, a "black hole" discovered in the Britannia's accounts.
Presumably a fully professional board would have put their trust in the mighty KPMG just as the amateurs did.
There was a similar piece of amazing incompetence from an established part of the professional "finance" industry when the Icelandic banking system ran into trouble. Up to a month before the collapse Iceland's sovereign debt was given A ratings by all four of the major credit rating agencies. Several UK local authorities which had bought Icelandic bonds in good faith were caught out (and, I think, were actually compensated by the UK government - see here).
We need to ask whether the ratings of these agencies are really meaningful and whether the accountancy industry, concentrated as it is on the "big four" (KPMG, Deloitte, PwC and E&Y) is really fit for purpose.
A final point in favour of the Co-op Bank is that, when in difficulties, it rescued itself without calling on public funds, unlike the Royal Bank of Scotland and Lloyds Banking Group, both of which needed to be bailed out with taxpayers' money.
So there are no grounds for Co-op Bank's unfortunate setback to be used as evidence for a loss of confidence in co-operative and mutual ownership