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US hedge fund-run Co-op Bank ‘a tragedy’ – ex-Co-op chief

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  • 22/10/2013
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US hedge fund-run Co-op Bank ‘a tragedy’ – ex-Co-op chief
A former Co-op Group chief executive has described the prospect of hedge funds running the Co-op Bank as a “tragedy” caused by the financial crisis and regulatory demands.

Peter Marks, who retired from his position in August 2012, gave evidence to the Treasury Select Committee one day after his successor announced the mutual’s stake in the troubled Co-op Bank would be reduced to 30%.

Marks argued the merger with Britannia Building Society in 2009 did not feel like an error at the time. The Co-op Bank’s current financial difficulties were due in part to the mutual’s inability to raise capital as quickly as other high street lenders, he said.

He told MPs the Co-op Bank was an “innocent victim” of the financial crisis: “Loans that were made by Britannia have gone to some extent sour and that is because of the economy.”

Regulators had “shifted the goalposts” in terms of capital requirements, he said, and this created a major problem for mutuals, as they could not turn to the markets to raise capital.

Marks said: “It is going to be very difficult for a mutual to compete in the banking market the Co-op was trying to compete in, which is high-volume, low-margin business.”

On Monday, it was reported that 70% of the Co-op Bank was likely to end up in the hands of US hedge funds and other institutional investors. The group’s stake has shrunk to 30%.

Marks said hedge funds could not be ethical: “Hedge funds are there to maximise profit. That is what their sole purpose in life is. To be truly ethical you cannot do that.”

The Co-op Group’s 30% stake did not represent control, he said, and the bank’s fate was tragic: “However I think there is a degree of inevitability because it was trying to stretch its capital across too many businesses.”

Marks, who began working for what became the Co-op in 1967, added: “It’s a tragedy what’s happened for the group, for the movement and for me personally. But the group still has a good future.”

Treasury Select Committee chair Andrew Tyrie said: “Being owned by a mutual, the Co-op Bank differed from most of its competitors. But on today’s evidence, its shortcomings did not.

“A lack of personal accountability at senior levels, ineffective corporate governance and insufficient experience and expertise among those taking the decisions; this has become a familiar story.”

In terms of mortgage lending, the Co-op Bank is unable to comment on future lending plans. However John Charcol senior technical manager Ray Boulger told Mortgage Solutions the Co-op Bank was unlikely to gear up mortgage lending again until 2014. 

 

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