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TheBlueCat

Co-Op Bank Likely To Fail?

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Their balance sheet is about 40B, which implies the need for around 3B in tier 1 capital. They already have 1.5B hole and now LAs and other public sector organisations are being told to move their cash out of there, which could easily be another couple of billion. The value from the shareholder's point of view (i.e. the hedge funds that now own most of the bonds) is mostly in the brand which is looking less and less wonderful with each new revelation in the Flowers saga. You have to assume that the BoE is providing liquidity in the background since there's no way they can be borrowing in the open market right now. How long before the hedge funds walk away from the deal and the BoE call in the administrators?

edit: apostophes

Edited by TheBlueCat

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Good post.

Ignoring the financials (it's all bluster anyhows)...

In 2010 the brand ranked in the top twenty UK most valuable brands. In 2013 they are ranking 43rd and I guess a lot lower from 2014 onwards.

I can't see how they can survive this. Question is who is going to buy up the supermarket and what are the venerable flowers pension arrangements. It's gone all Goodwin but much much worse :D

(Crap my mortgage is with them :( )

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There won't be much political will to save the Labour party's big donor. Maybe this will be the one allowed to fail B)

And having had the misfortune to deal with the incompetent buffoons over a business loan my reaction is "good" :)

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There won't be much political will to save the Labour party's big donor. Maybe this will be the one allowed to fail B)

That's got to be a factor too. No doubt the decision will be given to Mark Carney but the only thing he should care about is whether there is an systematic risk to letting them fail which there probably isn't.

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There won't be much political will to save the Labour party's big donor. Maybe this will be the one allowed to fail B)

And having had the misfortune to deal with the incompetent buffoons over a business loan my reaction is "good" :)

Also who are the retail depositors? Mostly labour voters?

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Also who are the retail depositors? Mostly labour voters?

That's got to be very likely hasn't it?

When I got my first bank account it was a choice between Lloyds, Barclays, NatWest and Midland as it was for most people. You would have needed to have a particular reason to avoid those and go for the Co-op and coming from a Labour-voting family would be the most plausible.

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I had some of my savings in there 9 months ago. You'll find I'm a little to the right of Lady Thatcher. For me it was pure market principles : guv guarantee and a better rate of return than elsewhere.

Anyone who thinks peeps would lodge money w/ the Co-op for political reasons learnt nothing from the RM IPO : socialism is for other people's money!

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Her indoors has a savings scheme with the co-op supermarket. £1 stamps stuck in a book. She has about £25 quid saved god bless her little cotton socks. I've told her to cash them in ASAP in case something happens. She also received the co-op dividend letter. Outside the envelope it was marked "Important News About Your Divided" ..she excitedly open the said letter and inside was written ......."you're not getting one.. ha ha!". [basically]

Real charmers they are.

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Good post.

Ignoring the financials (it's all bluster anyhows)...

In 2010 the brand ranked in the top twenty UK most valuable brands. In 2013 they are ranking 43rd and I guess a lot lower from 2014 onwards.

I can't see how they can survive this. Question is who is going to buy up the supermarket and what are the venerable flowers pension arrangements. It's gone all Goodwin but much much worse :D

(Crap my mortgage is with them :( )

Brand vs truth hmmmm

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I had some of my savings in there 9 months ago. You'll find I'm a little to the right of Lady Thatcher. For me it was pure market principles : guv guarantee and a better rate of return than elsewhere.

Anyone who thinks peeps would lodge money w/ the Co-op for political reasons learnt nothing from the RM IPO : socialism is for other people's money!

I had some money with brittania...i took it out the day i started the co op down grade thread. If they do go pop the people that left their money in there will no doubt be moaning they didn't see it coming

Interesting times for the bankers.

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Their balance sheet is about 40B, which implies the need for around 3B in tier 1 capital. They already have 1.5B hole and now LAs and other public sector organisations are being told to move their cash out of there, which could easily be another couple of billion. The value from the shareholder's point of view (i.e. the hedge funds that now own most of the bonds) is mostly in the brand which is looking less and less wonderful with each new revelation in the Flowers saga. You have to assume that the BoE is providing liquidity in the background since there's no way they can be borrowing in the open market right now. How long before the hedge funds walk away from the deal and the BoE call in the administrators?

edit: apostophes

Just looking through the 2012 financials - they took a £450m charge to the P&L provisioning for losses from the Britannia acquisition - which does confirm longtomsilver's point about not placing too much faith in the financials - i.e. as they acquired these loans in 2009 the fact that it took them three years to start disclosing what a crock they'd bought, it hardly inspires confidence that £450m recognises the extent of the losses that are actually coming.

How bad could it be? I recall reading that some of the really crappy Irish bank loan books were sold on to vultures at 50% of their nominal value, so it could easily be 10%. And as Britannia was about £25 billion, they could be looking at losses of £2.5bn from the Britannia crap - and that means they're already gone as it comfortably exceeds their capital and reserves. Just another zombie bank being kept alive by the Bank of England and the Treasury so that we can pretend were not f**ked.

Of course, as the FSA allowing the Britannia merger was prior to Osborne taking the helm at the Treasury and before the Bank of England took back regulatory responsibility, they could shoot Coop in the face without it making the present incumbents look bad, but it doesn't sit well with the preferred 'green shoots', 'the banks are fine!' BS - could go either way I would have thought.

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There won't be much political will to save the Labour party's big donor. Maybe this will be the one allowed to fail B)

But they are also the Lie Dems' bankers, so maybe they won't. ;)

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But they are also the Lie Dems' bankers, so maybe they won't. ;)

Yes does this mean the co-op will be saved by the govt at all costs, or is it yet another incentive for Osborne to pull the plug with a smile?

Realistically no bank has actually gone bankrupt yet has it, from the point of view of ordinary depositors ont he street? Even NR, with a full on bank run and queues, the bank still is trading and people with bank credit got to keep hold of it?

It's only those pesky foreigners like IceSave that go bust. British banks are made of stronger stuff! Aren't they?

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That's got to be very likely hasn't it?

When I got my first bank account it was a choice between Lloyds, Barclays, NatWest and Midland as it was for most people. You would have needed to have a particular reason to avoid those and go for the Co-op and coming from a Labour-voting family would be the most plausible.

I used Smile for many years until the issues surfaced with the group about six months ago. As usual, the story changes inexorably for theworse as the days/weeks pass and I wasn't prepared to hang on for the inevitable worsening.

I like smile since any post office can do most of the branch functions I need and at the time there was no branch of any bank close by, but a couple of post offices were near.

I have never voted Labour.

Edited by The B.L.T.

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Flowers has buggered the bank too.

I would say that Flowers is a symptom of the banks failure, rather than the cause or a contributor to it (I'd guess the Co-op etc would like everyone to think their problems could be attributed to him, so now he's gone everything will be just fine)

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Guest unfunded_liability

I had some money with brittania...i took it out the day i started the co op down grade thread. If they do go pop the people that left their money in there will no doubt be moaning they didn't see it coming

Interesting times for the bankers.

The FSCS £85K deposit guarantee scheme is still effective, so I don't see a need to worry about a bank failing unless I have over £85K (I wish).

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Their balance sheet is about 40B, which implies the need for around 3B in tier 1 capital. They already have 1.5B hole and now LAs and other public sector organisations are being told to move their cash out of there, which could easily be another couple of billion.

Cash deposits are nothing to do with core capital. If cash deposits reduce, that actually reduces the balance sheet, and hence the regulatory capital requirement.

You have to assume that the BoE is providing liquidity in the background since there's no way they can be borrowing in the open market right now. How long before the hedge funds walk away from the deal and the BoE call in the administrators?

Those bonds have been going cheap since the troubles hit the news. That's what attracted the hedge funds: they were picking up assets on the cheap (as were a fair few private investors). They've now got a lot at stake. My gut feeling is, it'll take a very big bust indeed for them to cut support and take a big loss. It's slightly akin to Barclays' situation after they secured the arab bailout.

The interesting bit of the Flowers story is what it tells us about socialist patronage: a top job going to a man whose qualifications were purely political. I had no idea the Coop had that kind of rottenness.

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Well if the Coop bank is insolvent then the BOE will be forced to put it into Resolution. At the very least that is going to involve a massive bonfire of bondholders including some Hedge Funds. There is going to be a rich irony if the princes of disaster capitalism get burned by the implosion of a supposedly ethical socialist bank. As for the rest of the group it needs to be born I'm mind that the Coop Bank is a public limited company not a mutual. The rest of the Coop group are simply the principle shareholders so their exposure is their equity stake. While it is useful for the government to exploit the Coops problems to embarrass the Labour Party I am not sure Osborne wants another bank crisis in the lead up to the next General Election especially as bank runs have a

nasty habit of spreading. Compared to the rescue of RBS , HBOS or even NR the capital shortfall at the Coop is small so I expect the bank to be rescued in some way while a Public Enquiry is held to ensure the maximum negative PR for Milliband and Labour

Edited by stormymonday_2011

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I used Smile for many years until the issues surfaced with the group about six months ago. As usual, the story changes inexorably for theworse as the days/weeks pass and I wasn't prepared to hang on for the inevitable worsening.

I like smile since any post office can do most of the branch functions I need and at the time there was no branch of any bank close by, but a couple of post offices were near.

I have never voted Labour.

Smile has been my main account for over ten years, had no problems with them at all, but what is the worst that can happen here from a customer point of view, another bank takes over the banking parts of the business, like Barclays did with ING?

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I would say that Flowers is a symptom of the banks failure, rather than the cause or a contributor to it (I'd guess the Co-op etc would like everyone to think their problems could be attributed to him, so now he's gone everything will be just fine)

Indeed. Flowers is an incompetent junkie who should never have been head of the co-op bank, but its financial problems stem from the britannia take over which occurred before he became chairman.

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The interesting bit of the Flowers story is what it tells us about socialist patronage: a top job going to a man whose qualifications were purely political. I had no idea the Coop had that kind of rottenness.

Peston made some rather veiled comments about this on his BBC blog. In particular he cited

a governance system that allowed a small number of activists in the political wing of Co-op Group to control the group's commercial activities.

http://www.bbc.co.uk/news/business-24984680

One does wonder whether the Coops ties with the Labour party played at least some part in the unravelling of the bank.

No doubt Cameron and Osborne will be keen for any dirt to be exposed by an Inquiry before the 2015 General Election while Milliband will be desperately hoping it can be put off until after that date

Edited by stormymonday_2011

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The FSCS £85K deposit guarantee scheme is still effective, so I don't see a need to worry about a bank failing unless I have over £85K (I wish).

Yeah...i should wait for the collapse of a bank and line up cap in hand asking for my own money back....no thanks...you queue up. When it comes to panic...always panic first.

Edited by TheCountOfNowhere

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