By Martin Kelly
The co-operative bank is set to announce it is cutting well over 1000 jobs, according to SKY News.
The bank, which this year was downgraded by ratings agencies, could officially announce the job losses as early as Monday.
Problems with the Co-op bank’s finances emerged in May this year when bosses at the bank confirmed that it had stopped offering loans to new businesses amid concerns that it did not have enough capital in reserve. It emerged that the bank had a capital shortfall of £1.5bn.
The Co-operative Bank’s problems began in 2009 when it acquired the Britannia, then Britain’s second-biggest building society. Co-op inherited £11bn of toxic loans from Britannia which contributed to a £662m loss last year.
A re-capitalisation plan agreed with the UK Treasury will result in the bank no longer being owned by the mutual Co-operative Group. The Co-operative Group will remain the largest single shareholder with 30 percent of the bank, but the remaining 70 percent will now be owned by bondholders, including US hedge funds Aurelius Capital Management and Silver Point Capital.
The Co-operative Group’s former chief executive recently described the restructure plan as a “tragedy” and said it would destroy the bank’s ethical values.
Appearing before a Treasury Select Committee, Peter Marks said: “It’s not a Co-op,” he said. “Hedge funds are there to maximise profit – that’s what their sole purpose in life is. To be truly ethical they can’t do that.”
Co-op investors, including pensioners, are expected to lose out when their investments are replaced by income-paying bonds as part of the rescue package.
An arm of the Co-operative Bank, the Unity Bank, is closely associated with the Labour party and the trade union movement. The bank is the Labour party’s major creditor, having loaned millions to the cash-strapped party.
In 2006, the Daily Telegraph reported that the Co-op Bank had extended Labour’s loan overdraft to £11m, and criticised the bank’s reluctance to discuss the nature of its relationship with Labour. The bank also reportedly made a loan of £3.5m to Labour, secured on the party’s headquarters.
In May of this year the Times newspaper reported that the Labour party is dependent upon an overdraft of £3.9m with the Co-operative Bank, which is held on terms very favourable to the party. The restructuring of the bank could lead it to revise the terms of Labour’s overdraft, causing the party severe financial difficulties.
The Co-operative Group is also the sponsor of a number of Labour MPs and former MPs, including George Foulkes (now Lord Foulkes of Cumnock) who sat in the House of Commons as a Co-operative party MP.
The Co-operative party was established in 1917 as the political arm of the Co-operative Group. Although it is a separately registered party, all Co-operative party election candidates are jointly nominated as Co-operative/Labour following an agreement made in 1926.
Since party funding records began, the bank’s donations to the Co-operative Party have been increasing, from £228,893.25 in 2001 to £809,000 in 2011. The Group have donated directly to Labour as well, giving as much as £89,356 in 2004 and £50,000 in the first quarter of 2012.
However, the Co-operative Party also donate to Labour, giving an average of over £100,000 a year between 2001 and 2011.
Labour is also one of the organisations, and only political party, to benefit from indirect donations from the Co-operative Bank credit card schemes, which has so far raised over £2m for the party.
Last July, Labour leader Ed Miliband hailed the Co-op Bank as his preferred model for banking reform, saying that the bank had “always understood that ethics of responsibility, cooperation and stewardship must be at the heart of what you do.”