Comment: ‘Ethical’ bank will sup with stock market devils

With the Co-operative Bank’s shock recourse to a partial stock market flotation to help plug the black hole in its balance sheet, it’s like catching out your fusty aunt putting it all on red in Las Vegas only for the roulette wheel to come up black.

The Co-op Bank’s parent, the  Co-operative Group, will remain a mutual and also continue to financially support its stricken banking offshoot on top of the bonds-for-equities swap with the business’s stakeholders.

But what a hybrid the Co-op becomes: partly a customer-owned mutual, a sector that has showily adopted the moral high ground compared with the stock market’s greedy shareholder excesses, and partly a… stock market quoted company.

A “significant minority” of the shares in Co-op Bank will be floated later this year. And, unfortunately, partly stung in the exercise are estimated to be about 7,000 small bondholders with an average holding of £1,000 each.

It is possible many other Co-op members and customers, even those not affected financially by the bail-in, will look askance at developments. How “ethical” will the supermarkets-to-funerals-and-pharmacies group be able to remain when it sups with the stock market devil?

Clearly the most-attractive aspect to regulators of the bondholder “bail-in” and flotation is that the Co-op avoids the taxpayer bailout that Royal Bank of Scotland, Lloyds, Northern Rock and Bradford & Bingley needed in the financial crash.

Some salutary bondholder pain was precisely the recommendation of Sir John Vickers’ Independent Commission on Banking report in 2011 in the wake of the billions of pounds of taxpayer money poured in to keep the hole-in-the-wall machines working three years earlier.

It always seemed unfair that shareholders could be wiped out in a banking crisis, but bondholders got away scot-free. The Co-op rescue does at least spread the pain more equitably.

This morning, the Treasury committee will grill Lloyds chairman and chief executive, Sir Win Bischoff and Antonio Horta-Osorio, on the 11th-hour failure of the financially-stretched Co-op’s bid to buy more than 600 branches. That was the first nail in a purely mutual Co-op Bank’s coffin.

Avenging MPs assemble. Pyrotechnics possible.

Will Bernanke’s body language be measured?

A study by Edinburgh University suggests the tone of chairmen of the US Federal Reserve in their monetary policy speeches, regardless of the content, can move world gold and silver prices. Apparently, incumbent Ben Bernanke is generally more sanguine in tone anyway, and so bullion prices remain relatively unmoved when he nudges up his optimism.

By contrast, says the university, Bernanke’s famously delphic “boom-bust” predecessor, Alan Greenspan, tended to be more realistic – read cautious – in tone adopted.

So when he did inject even just 1 per cent more certainty – measured by text analysis software – it would increase the price of gold bullion 0.1 per cent. Given the slender margins involved, I don’t know how sad that makes financial markets.

Next step, body-language a factor as well? “Look, Bernanke’s waving his arms about.” “Don’t sweat, he’s always doing that.”