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Any other business

Should the Co-op be preparing for its own funeral?

Plus: An outburst of dotcom common sense, and Tesco’s latest troubles

19 April 2014

9:00 AM

19 April 2014

9:00 AM

‘Care, respect, clarity and reassurance’ are what the Co-operative funeral service says it offers the bereaved, and the parent Co-op Group may soon find itself in need of just such support to help it come to terms with the resolution of the Co-op Bank. ‘Resolution’ is modern banking jargon for an orderly burial, involving powers vested in the Bank of England to transfer all or part of a troubled bank’s business to a private-sector purchaser, or (if the Treasury is so inclined) into temporary public ownership, or to force an accelerated insolvency procedure that ensures depositors are either paid out by the Financial Services Compensation Scheme or have transferred to healthier banks.

These last rites have not yet been publicly contemplated, but it is hard to see how else the story can end. Knocked off course by its disastrous takeover of the Britannia building society, fatally distracted by its pursuit (with Vince Cable’s pushing) of Project Verde, the purchase of Lloyds branches that never happened, the bank has a huge black hole in its balance sheet and scant hope of returning to profit. Its ‘ethical’ status has been dented by its record of mis-selling payment protection insurance. Following a recapitalisation last year, it is 70 per cent owned by a curious collection of US hedge funds whose only interest is to make a fat turn as swiftly as possible, while the Co-op Group itself, as a 30 per cent shareholder, is left with diminished influence over the bank which so dangerously bears its name.

And that stake will reduce again if the parent (which has other problems of its own, notably in the aftermath of its acquisition of Somerfield supermarkets) cannot come up with its share of an additional £400 million capital call made by the bank last month. The distinctly non-ethical consortium of banks to which the Co-op Group is heavily indebted — Barclays, RBS and Lloyds to the fore — are no doubt ready to swallow Co-op Bank’s 4.7 million retail customers between them as part of a wider settlement.

All this will come into even sharper focus with the confirmation of record group losses this week. Meanwhile in the board game of corporate survival, ‘Lord Myners parachuted in to overhaul your governance’ was probably more of a snake than a ladder in the first place; but ‘Myners’ shock resignation’ is a big, slippery, hissing PR disaster, confirming as it does what departing chief executive Euan Sutherland said last month about the group being ‘ungovernable’.

Myners — the multi-millionaire former Labour minister for the City, known according to a Spectator profile for his ‘iconoclastic views, considerable ego and ferocious temper’ as well as his ‘rich, fruity voice’ and ‘glossy’ metropolitan social profile — was never likely to hit it off with the representatives of provincial Co-operative movements who make up the group’s bloated and unbusinesslike board. Those directors are now locked in a defensive mindset which makes intervention by the Bank of England and the Treasury all the more likely in the end. The walk-on part of Lord Myners is, I fear, no more than a sideshow in the slow procession towards the crematorium of this once great institution.

Outburst of common sense

Talk of the bursting of another dotcom bubble is, I suggest, a bit overdone — even though a notional $275 billion was wiped off the value of leading internet stocks in the last week or so as New York’s Nasdaq index took a dive after a long climb. Jitters over Ukraine and the reduction of the Federal Reserve’s bond-buying programme — the cheap-money injections to which the market was becoming addicted — have contributed to the mood. But plain-silly valuations had started to creep in and the pattern of share disposals by dotcom founders and executives (including Sheryl Sandberg of Facebook) ahead of the downturn suggested a lack of faith among insiders.

The truth is that almost all businesses are internet businesses these days in one way or another, because that is where so much of their interaction with customers takes place and where, in hollowed-out 21st-century companies, the internal efficiencies are to be found. Investors will always be gullible or deluded enough to follow an excited crowd, but they are surely more discerning today than they were in 1999 about what makes a viable tech proposition. I praised the business model of AO World, the online appliance seller, but I called its £1.6 billion valuation — six times annual sales — ‘slightly ridiculous’ after it floated in early March. The fast-food website Just Eat came to market a month later at a £1.5 billion valuation that was 15 times sales; intermediating between couch potatoes and their local takeaways is a pretty basic dotcom concept that’s all too easy to copy, so in relative terms that one must count as positively ludicrous. Both have seen their shares slip below the float price in recent days, and I think we can regard the current trend as a temporary outburst of common sense rather than the onset of a slump.

Ebb tide for Tesco

In January I remarked that I wouldn’t want to be Tesco chief executive Philip Clarke as the once-mighty supermarket chain stumbles towards has-been status. Since then, its share performance has been dire, finance director Laurie McIlwee has resigned, City investors have been freely picking their shortlist for Clarke’s successor even though there’s no indication that he might like to spend more time with his lawnmower, and as a second year of declining profits is due to be unveiled this week — while PR efforts to place good-news stories ahead of the results announcement were set back by Daily Mail coverage, complete with video footage, of ‘rats crawling over food “at Tesco distribution centre” ’. There is a tide in the affairs of men, the Bard told us, but for Tesco these days the voyage really does seem ‘bound in shallows and in miseries’. Hey ho, must dash to our new nearby Lidl for some competitively priced pre-Easter shopping.

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