Over recent weeks The Co-operative Group has been featured in the news a lot and much of it will raise concerns for its millions of customers. Firstly, it was announced that Co-operative group would lose majority control of its banking arm if the latest rescue plan goes ahead and then there have been the ongoing scandals around the bank’s leadership. So where does this leave the bank’s ethical heritage and how will it affect their customers?
The current rescue plan, announced last month, for the troubled bank in its fight to avoid nationalisation, would see the Co-operative group have a 30% stake in the bank when the bank is floated on the stock market, with 70% in the hands of a group of American Hedge Funds. However, there is still uncertainty about whether this plan will go ahead, as it is to be put to a vote for small investors and pensioners this Friday (29th November).
The original rescue plan, drawn up in June would have seen Co-operative group retain a 75% controlling stake, but this plan was rejected after pressure from corporate bondholders, who were being asked to shoulder losses in return for shares in the bank.
Euan Sutherland, the chief executive of Co-operative group maintains that the plan is still good for the group, stating that ‘’this is the first bank to be rescued and to survive as a standalone entity without taxpayer money’’ and also states than the Co-operative group would still be the biggest single shareholder.
But savers will still be concerned about the possible implications to their accounts under the proposed arrangements and the ethical values that may have attracted them to Co-op in the first place.
Co-op Bank is the largest and most well-known provider with ethical principles and is the only one on the high street. The bank has stated that it remains committed to preserving it’s ethical status, but it is difficult to see how it can maintain ethical principles, whilst also focusing on good performance for shareholders. Would shareholders accept a lower return in exchange for maintaining ethical principles?
Some savers will be looking for an alternative ethical provider for their money, but what are the alternatives? Providers, who have clear ethical principles, offering savings accounts, include lesser known names such as Ecology Building Society, Reliance Bank, Charity Bank and Triodos, none of whom have competitive accounts available at the moment. Therefore savers will need to be prepared to compromise on interest rates for their ethical principles.
It is also worth mentioning that there are some Sharia’a Compliant accounts. These providers look to invest in an ethical Sharia’a compliant way in order to produce a profit which is then shared amongst the members. Bank of London and the Middle East (BLME) and Islamic Bank of Britain are key providers and United Bank (UBL) offers a couple of Sharia’a compliant products. Many of these products are competitive – but they offer a projected return based on profit, which of course cannot be guaranteed, rather than a specified rate of interest. These accounts do however benefit from the protection offered by Financial Services Compensation Scheme (FSCS), subject to the normal limits.
Should savers be worried about the money they hold with the Co-operative group? It is worth remembering that the Financial Services Compensation Scheme (FSCS) is in place and will protect up to £85,000 (£170,000 for joint accounts) of savers’ money should the licence holder go bust. Do remember however that the limit applies to the total investments held with the licence holder, which includes Britannia and Smile as well as Co-op bank. Therefore it is certainly worth keeping within the limits to be on the safe side.
Bondholders have also been worried about losing money as a result of the troubles that Co-op are going through, but this would only be an issue for those holding corporate bonds. Savers who hold fixed rate savings bonds would be covered under the FSCS, as with any other savings account, as long as the limits are not exceeded.
So, should savers be worried about the change in ownership? Probably not from a security viewpoint because their funds are still protected under the FSCS and the bank itself would probably in a more stable position if this plan actually goes ahead. Of more concern is for those looking to invest with an organisation with ethical principles, because it will be difficult if not impossible to maintain these principles whilst still keeping shareholders happy by maximising profit. Those who want to save with an ethical provider may well need to look elsewhere to maintain their principles.