Image by Kake Pugh via Flickr
Lloyds has agreed the sale of 632 branches to the Co-op.
The sale of these branches was a condition imposed by the European Union on Lloyds, as a condition of its receiving State aid when the government bailed it out during the credit crunch.
The customers who are attached to those Lloyds branches (who number 4.8 million) will also be transferred to the Co-op.
The Telegraph comments that the price, £750 million, is far below the £2 billion that Lloyds had hoped to get for those branches. This is a “blow for Lloyds”, according to the Telegraph – but at least they have disposed of those branches and can now move on.
The Telegraph also mentions that
The price cut reflects the the regulatory and funding problems Co-op is likely to face
Those problems will be alleviated by the fact that Lloyds will underwrite the debt that the Co-op is taking on to pay for the deal. But that won’t help with those regulatory problems.
The problem is that the Co-op took over Britannia Building Society as recently as 2009. The Britannia at that point was actually larger than the Co-op Bank. The integration of that business with the Co-op is far from complete.
This deal will boost the Co-op Bank to 1,000 branches. Of those, 638 will be former Lloyds branches, and more than 200 were previously Britannia ones. The Co-op Bank will therefore have five times as many branches as it had two years ago.
Peter Marks, Chief Executive of the Co-op Bank, claimed he had achieved a “good deal” for his members.
Well, it’s obviously a good deal for him and the other executives of the Co-op Bank. But does it really benefit members?
George Osborne, of course, loves the deal:
“This is another step towards creating a new banking system for Britain that gives real choice to customers and supports the economy,” the Chancellor said. “The sale of hundreds of Lloyds branches to the Co-operative creates a new challenger bank and promotes mutuals. This… represents another important step towards a more competitive banking sector.”
Really? I guess it makes the Co-op a more powerful challenger on the High Street, but is it really desirable to promote mutuals?
It is often commented that publically listed companies are only weakly accountable to their shareholders. But the accountability of mutuals to their members is weaker still. A Building Society, or indeed the Co-op, will have thousands or even millions of members, each with a single vote at the AGM.
At least for a public company there are typically a small number of large shareholders who can force some accountability by virtue of the fact that they get a vote per share they hold.
In the case of a mutual, most members don’t bother to attend the AGM or to vote, and those that do typically vote as they are recommended by the managers. After all, those managers are leaders of a cuddly mutual so obviously have their best interests at heart!
And there are no big shareholders with the muscle and loud enough voices to force the management to listen if they are making mistakes, or if they are more interested in empire building than the interests of their members, or even just if they are paying themselves too much.
In the case of the merger of the Co-op with Britannia, the Britannia members had to approve the deal. Of course, like sheep, they did so – at least the minority who bothered to vote. There were in fact good reasons for thinking that the deal was not in the interests of Britannia members.
And in this case, with the Co-op stretching itself so wide to grab these Lloyds branches, there are also reasons to think their members really have no reason to welcome the deal.
More generally, it seems to me that mutuals are grossly lacking in accountability and are typically run for the benefit of their executives, even more than public companies (or indeed the government!) are.
The mutual “movement” really has nothing to be proud of. There is a serious accountability deficit inherent in their business model.