The heads of Britain's biggest trade unions are holding an emergency meeting to discuss the future of Co-operative Bank, after the bank was downgraded to junk status and its chief executive quit.
The union general secretaries are concerned that any financial difficulties at Co-op Bank could detrimentally affect the unions' Unity Trust Bank, which is 26.7% owned by the Co-op, part of the country's largest mutual, which also runs funeral homes and grocery stores.
Billy Hayes, general secretary of the Communication Workers Union (CWU) and a non-executive director of the Unity Trust Bank, said Co-op's downgrade was a "major worry for the unions and our members".
Credit rating agency Moody's warned that Co-op Bank – which has 6.5 million customers and a 1.5% share of the current account market – might need additional help to strengthen its balance sheet. It downgraded the bank because of the weight of loans to commercial property lenders and the slow progress on integrating the Britannia building society which it took over three years ago.
The bank's chief executive, Barry Tootell, resigned and will be replaced by insider Rod Bulmer, who will be acting chief executive until a successor is found.
Hayes said the unions may call for a public inquiry into what went wrong at Co-op Bank and may call for clawbacks to any bonuses paid to executives. The meeting at at Unity Trust Bank's annual general meeting in central London was already scheduled for Friday, but Co-op Bank was added to the top of the agenda after the news broke. Many union members have bank accounts with the Co-op Bank.
Richard Wilcox, managing director at Unity Trust Bank: "Whilst the news about the Co-op was obviously discussed at Unity's scheduled board and agm today the relationship with Co-op continues to be managed as normal ... we work as an independent entity and are not impacted by changes to the credit rating of the Co-operative Bank."
Co-op said it was "disappointed" about the downgrade from A3 to Ba3, which comes amid repeated questions about the Co-op's financial strength since it pulled out of buying 632 branches from Lloyds Banking Group last month. Tootell had been leading the takeover of the Lloyds branches, a deal code-named Verde.
Co-op Bank moved to reassure customers. "In light of today's news, we would like to reassure customers and members that we haven't sought nor do we need government support," the bank tweeted.
But Co-op acknowledged for the first time that it needed to strengthen its capital base at a time when the entire banking industry is awaiting the outcome of a review by the Prudential Regulation Authority into a £25bn capital shortfall identified last November. Individual banks are yet to be told precisely what their portion of this shortfall is. Co-op said it could raise the capital by selling its general insurance arm, the sale of its life insurance concerns to Royal London and by simplifying its existing business.
"We do acknowledge like the rest of our banking sector peers, the need to strengthen our capital position in light of the broader economic downturn and the pending introduction of enhanced regulatory requirements and we have a clear plan to drive this forward throughout the coming months," Co-op said.
The bank insisted the steps it was taking to bolster its capital would be enough to allow it avoiding a taxpayer bailout. But Moody's questioned whether its proposed disposals and scaling back of its businesses would be enough to bolster the the bank's capital ratio, which at 8.8% was low relative to its peers. The ratings agency said the Co-op was unlikely to be able to generate enough extra capital through earnings and that there was was "material uncertainty" that the disposal programme it had in train would be enough.
The downgrade comes as Peter Marks, the long-standing head of the Co-op who led the Britannia deal, retires at next week's annual general meeting in Manchester. He is likely to face questions about the ambitious pace of expansion amid increasing speculation that his successor Euan Sutherland will pull out of banking.
But on Friday the Co-op insisted it was remaining in banking. It said: "The actions we will now take to strengthen our balance sheet and simplify our business model around a core relationship offer will create a compelling co-operative banking business which is truly distinctive within the banking sector."
The government has been keen to foster competition in the banking industry and the Co-op has been regarded as major rival to the "big four" of Lloyds, Royal Bank of Scotland, HSBC and Barclays.
But the prime minister's spokesman said he would not speculate on the Co-op Bank's future other than that Downing Street and the Treasury would be watching events closely. "I would simply say that we are committed to having a strong and stable financial sector, as well as well-regulated," he said.
As George Osborne arrived at the G7 summit in Buckinghamshire, he said that the new proposals outlined by the Co-op would be examined by the PRA. "The Co-op put out a statement about how they're going to strengthen their capital position," the chancellor said. "Those plans, like the plans of any bank, will be supervised by our new independent PRA … We now have a very strong independent regulatory system that looks at all of our banks including the Co-op and indeed here at the G7 we're going to be talking about what we can do to strengthen international co-ordination and regulation of our financial system."
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Represented on the Board
Communication Workers' Union
GMB
National Union of Rail, Maritime and Transport Workers
UNISON
UNITE
USDAW
The Co-operative Bank plc
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