Demise of The Co-operative Group / Part 1 - La Débâcle
I am part owner of a very large co-operative corporation which in January 2013 was valued at £81,999 million. One year later, in January 2014, it was valued at £8,623 million.
What in the name of heaven could have gone so spectacularly wrong?
Where did £73,376 million go?
Who was being held responsible?
What recourse did I, as a part owner, have?
What were the implications for the future? What options were there for going forward?
In trying to grasp the enormity of the situation and to respond to these (and other) questions, I began to plod through various sets of Accounts (The Group 2012, 2013, 2014 / Britannia 2008, 2009), the Kelly Review, the Myners Report, and various other bits and pieces (all in the public domain) and tried to piece together a picture of what actually transpired and what options were left open to me as a co-operative shareholder.
In essence, it breaks down as follows:
The Co-operative Group is the co-operatively owned corporation in question. The flagship of the UK co-operative movement, like all co-ops it was democratically controlled on the basis of membership voting. That is to say, no matter how many shares you might own, you still only get one vote. Standard model “speculator” corporations (the “normal” ones we hear of, daily, ravaging the world's ecosystems and unsettling economies) are owned and controlled on the basis of one share one vote - which allows super-rich individuals to buy up shares and control whenever the fancy takes them. For this reason alone, capitalist predators are not usually interested in co-operative corporations. (This is also why co-operative corporations tend to be more stable - and to have a more stabilising influence on economies - than speculator corporations.)
The Co-operative Group had enormous interests in a variety of trading areas, principally Food, Farms, Pharmacies, Travel, Funeral care, Insurance, and, most notably, Banking.
The Co-operative Bank was not itself a co-op, but was a wholly owned subsidiary of The Co-operative Group. In 2009, the decision was taken to merge the Bank with the Britannia Building Society. Three years down the road, it became evident that The Group had been sold a pup. A £1.4 billion hole was discovered, belatedly, in the Britannia accounts. It transpired that the Britannia had been speculating heavily in the commercial mortgage market and had fucked up badly.
In fact, though it was by far the major contributor, the Britannia merger wasn't the only factor. The 2013 Accounts showed where other major hits were taken and the Kelly Review provided some detailed background.
The Accounts show massive write off at “Discontinued Operations”. Operations were discontinued on several fronts for complex and inter-related reasons. Prior to the Britannia merger, a new IT platform - “Finacle” - was in the process of being developed for the Bank. This was in itself very ambitious, but the complexity was compounded by the then chief IT officer departing (?) for another job and then the prospect of the Britannia merger. The merger implied one of three IT options. First, adopt the Bank IT platform across both businesses. Second, adopt the Britannia platform across both businesses. Third, adopt Finacle across both businesses.
In the event, all this was thrown into disarray with the advent of yet a fourth option - the prospect of acquiring several hundred TSB Branches from the Lloyds banking group. Suddenly this fourth option – code named ”Verde” - became the most likely candidate. This would involve the adoption of the Lloyds IT platform across all businesses. As a result, all the other options were put on hold. When Verde was eventually discontinued (due in no insignificant part to the discovery of the £1.4 billion hole in the Britannia accounts), the other options were effectively dead and yet another option presented itself – the default option of continuing with both the Britannia and the Co-op Bank platforms for the time being. This became the option settled upon in the absence of viable alternatives, costly in itself because of antiquity and lack of integration, but with the costs of all the other “discontinued” options lumped on to the accounts as write off.
Losses shown at “Total Assets” consisted primarily of the loss of 70% (as at Annual Report publication, later to rise to 80%) of the Bank arising out of the above débâcle. This included land and buildings which were at the time in the ownership of the Bank and which became assets of the separate entity eventually controlled by one or two of the specialist “stressed debt” hedge funds then circling with avaricious interest. The sale of further assets in the form of the Farms and the Pharmacies divisions was undertaken as The Group struggled to fill holes and re-establish its baseline.
A previous acquisition – the Somerfield stores – also had to be massively devalued largely because, with all the other activity going on, there were insufficient resources (staff and finance) to capitalise on whatever opportunity was presented.
This loss of control and re-financing of the Bank plus the write-offs mentioned above were the primary elements of what amounted to, unsurprisingly and by far, the biggest loss in The Group's 150 year history.
tbc / Part 2 – The Accountability
....to be continued.
Who has been held responsible?
© 2015 Deacon Martin