When the Manchester-based Co-operative Bank was announced last July as the buyer of 632 Lloyds branches, tripling the size of its own network, I hailed the news as a step forward for ‘banking biodiversity’. In February, George Osborne was still praising the deal, codenamed Project Verde, as one that would ‘shake up the established players’. But last month it fell apart — and the superfluous Lloyds outlets, which Brussels insists must be disposed of as a condition of the 2008 Lloyds-HBOS merger, are now likely to be repackaged as a revived Trustee Savings Bank. Meanwhile, the news got worse for the Co-op: after losses last year of £674 -million, it has been downgraded to junk status by the Moody’s ratings agency and has parted company with chief executive Barry Tootell, who was appointed two years ago to drive Verde to completion.
The problem is that the Co-op’s loan book has deteriorated as the circumstances of its borrowers have failed to improve while Verde has been on the negotiating table. By the end of last year, the bank was carrying £3.7 billion of ‘impaired’ credit exposures against £1.8 billion of ‘Tier 1’ capital — the most troublesome portion of its portfolio being the legacy of its takeover in 2009 of the Britannia Building Society, which had lent large on high-risk commercial real estate. Like the Lloyds-HBOS fiasco, this is a lesson for next time: quick-fix merger solutions, waved through by ministers and regulators, defer problems but don’t magic them away. It’s also a reminder that lurking within the bigger balance sheets of the major banks are undeclared volumes of doubtful domestic loans waiting to be cleaned up.
‘We haven’t sought nor do we need government support,’ said the Co-op Bank last week — but it does need an urgent capital injection of at least £1 billion. Part of that can be generated from a sell-off of insurance interests, but the bank’s mutually owned Co-op parent may have to decide whether to prop up the bank at the expense of its retail and funeral businesses, or whether it would be better out of banking altogether. In which case, the Treasury will round up the usual suspects as potential buyers, the high street will lose a lender with a sense of social purpose, and the concept of ‘challenger banks’ shaking the establishment will take another step backwards. What a sad late consequence of the follies of the past.
The Fergie bubble
As Manchester institutions go, Sir Alex Ferguson is almost as venerable as the Co-op. But I admired Digby Jones for pricking the Fergie hype bubble in a radio interview by declaring the outstanding ‘retiree of the week’ to be Paul Walsh, who is stepping down after 13 years as chief executive of the drinks giant Diageo, rather than the irascible Manchester United supremo. A second candidate for the title must surely be Sir Win Bischoff, who will leave the chair of Lloyds Banking Group in the next 12 months, having previously led Citigroup and Schroders.
The Ferguson announcement — the New York stock exchange heard it first, and the club’s shares fell 4 per cent — was a reminder of the ruthless money-machine, remote from its fans, that is United under its Florida-based controlling shareholders, the Glazer family. But it was FA chairman-elect Greg Dyke who inflated the bubble by declaring that the veteran trophy-collector ‘could have been a great leader in any field he chose’. Well, maybe: stamina, loyalty, will to win and gifts for team-building and talent-spotting are certainly attributes that Ferguson shared with the likes of Walsh and Bischoff.
But his ‘hairdryer’ technique of shouting at star players would not have gone down well in today’s corporate milieu, and neither would his in-your-face hostility to awkward journalists. For a really furious business leader, we have to look back 40 years to Lord Kearton of Courtaulds, whose normal state was described as ‘total dissatisfaction with everything’, or to Kearton’s protégé Sir Alastair Morton, the short-fused leader of the Eurotunnel project in the 1990s.
These days we have the raging-boss caricature that is Alan Sugar on The Apprentice, but I don’t know anyone who regards him as a real role model for business success. Much better to be a client-focused old schmoozer like Bischoff, of whom Judi Bevan once wrote here that talking to him was ‘like breathing pure oxygen’. Or Manchester-bred Walsh, who turned £100 invested in Diageo when he took the top job in 2000 into £538 today by persuading new-rich Asians to drink his premium whisky brands: ‘big, shiny, charming behind the slightly gruff, blokeish exterior… he could be [veteran football manager] Ron Atkinson’s better-looking younger brother,’ wrote Andrew Davidson in Management Today. Come to think of it, if David Moyes disappoints, Paul Walsh might be the modern man for Manchester United.
Low-cost high art
Another late victim of the extended downturn (even if it might at last be ending) is the subsidised arts sector, subject to a savage combination of squeezed funding and technological progress. By the latter I mean not only the ubiquity of almost-free arts content on the internet, but the fact that theatre, opera and ballet performances by major companies at home and abroad are now available in live broadcast or recorded form in local cinemas across the country — including the one I help to run, where we sell out for everything from the National Theatre to the Bolshoi.
As a channel of low-cost access to high art it’s a triumph, but it is surely eating into live ticket sales for the companies providing the content more than it is driving new audiences towards them. It’s all very well telling artists to embrace the possibilities of digital commerce, but on current trends we’ll end up with a lot less high art to broadcast or download. The French socialist government doesn’t often impress me, but its proposal to fund the arts through a small sales tax on smartphones and other internet devices looks unusually smart.
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