Harwood Real Estate has exchanged contracts to buy 41 assets from the Co-operative Group. The £120 million sale is intended to offset losses made by the group’s banking arm.
The sale comes to light when news was revealed that the Co- operative Bank’s overall capital provisions were expanded by a further £100 million for regulatory and conduct costs. The Co-op Bank said its existing £1.5 billion deficit still stands.
In a major restructuring, Co-op handed a dominant stake of the banking arm to US hedge funds and other institutional investors. Co-op claimed that the move, while ending its mutually owned structure, was vital to saving the lender and its bank balance.
Commenting on hedge funds gaining control of the Co-operative Bank, Andre Spicer, Professor of Organisational Behaviour at Cass Business School, said: “It is unlikely that the Co-op will maintain its ethical approach in the long run. History suggests that once a mutual bank is privatised it drops the focus on doing good to focus on doing well for shareholders.
“Many ex-mutuals became some of the worst offenders in the lead up to the financial crisis. Previously co-operatively owned banks like Northern Rock and Branford and Blingley were dominated by a hard driving sales culture. They had loan books stuffed with dodgy loans. All this was due to the over-riding search for shareholder returns.
“Private control of the Co-op will also have other outcomes. The number of staff the Co-op employs is likely to drop as management search for efficiencies. Staff who remain are likely to find themselves loaded down with various restructuring efforts. Despite assurances by the new owners, the Co-op is likely to have a more commercially focused culture. One thing which is unlikely to change is the amount of giving the bank is engaged in.”
Andre Spicer added: “The decline of mutual ownership of the Co-op will also have an impact on the whole banking sector. It will result in a decline in the diversity of business models and in the investment products available. Also demutualisation leads to a decline in efficiency and competitiveness of the banking sector as a whole. So the Co-op going private could mean we all have less choice between less efficient and competitive banks.”
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