In years gone by, the Co-op, that pillar of the mutual ideal, was seen as reassuringly solid, and secure. Its shops and funeral services were deliberately lacking in ostentation. Its bank was boring, too, regarded by the outside world as a risk-averse repository for the monies of charities, non-governmental organisations and people who didn’t really like the idea of banks – but accepted the need to have one.
When the banking sector crashed in 2007 the staff and customers of the Co-operative Bank could stand back, tut-tut and shake their heads, sure in the knowledge that their forebears, the thrifty weavers who in 1844 created the Rochdale Society of Equitable Pioneers, were up there in heaven, shaking their heads, too. And then along came Paul Flowers. Rarely does that insatiable beast known as the 24-hour news cycle enjoy fare as rich as the Reverend Paul Flowers. Clerics have often been exposed as possessing feet of clay but the rotund Methodist minister, former Labour Councillor, advisor to Ed, director of the Co-Op Bank in 2009, and its chairman shortly thereafter, before becoming the architect of the Bank's downfall ... is in a league of his own. I genuinely do not know where to start on his fall from grace.
However, he has my sympathies, because when the media get their hooks into you it is not pretty, whatever his misdemeanours. I am certain he has very good qualities and will be very sad now.
But the reality is that the UK mutual sector is now damaged by two spectacular collapses. The UK’s oldest mutual insurance company, Equitable Life, was brought low by promising more than it could afford to pay out to policyholders and savers. I have spent countless days as an MP trying to help those who lost their life savings in Equitable Life. The mutual sector’s largest bank, the Co-op, has just reported large losses, insufficient capital and a Chairman who lacked the qualities of mind and character to be a successful bank chairman. It is not bust but in real trouble needing a bail out.
Noone could have a problem with a good well run mutual. This recent history should, however, be a warning of the special risks mutuals can pose. With no shareholders to provide capital and insufficient conventional profit reserve some financial mutuals can be very risky. However, if anyone came to our London Local Banking Conference will know – there are always dangers when the pursuit of profit becomes the motive of the business. Profit should result from a good service, knowing your customer and knowing your market. I again make the point that not one of the German Local Banks went bust and have actually increased bank lending in the recession.
As to the Labour party, Ed Miliband has to answer for the millions of unpaid Co-Op lons to the Labour Party, the £50,000 donation to Ed Balls, and why these moneys are linked to the recent meetings with Flowers. As to Balls the scene last Wednesday with my colleague Jason McCartney, who is a Co-Op member had to be seen to be believed. For my part this does, however, strengthen the case for Local and Community banks - not weaken it.
