HEARD THE ONE ABOUT THE BANK THAT BOUGHT...

So I said to Carter over lunch why is it that you want to talk about the Co-op bank?  There are so many things more important.

"Like what" sez he.

"Like the entire French banking system," sez me.

"You have a point.  But everyone know that the system is bust, that they refuse to admit it, they will not fix it and will lie about it forever."

Our host, who takes more than a passing interest in matters such as this, intervened with the idea that what had been said was precisely the reason NOT to talk about French banks and to turn to Co-op which was a hell of a lot more interesting...so we did.  Without revealing any of our conclusions, here is something about which you can wonder.

That was a few weeks ago and we didn't know as much as we know now with the new information turning the whole mess into another banking version of the Gong Show but with an eerie resemblance to the Countrywide/Bank of America affair.

The events seem to have begun with the acquisition of the Britannia Building Society, and institution which, in British society played a role not dissimilar to Countrywide.  Now Co-op has been around for a while beginning life in Manchester in the 19th century and advertising that it was an "ethical" bank, not engaging in things like the "arms trade" in which one could make a fair turn at that time.  Throughout the years the institution strove to break into the front tier of banks in the UK known as the "Clearers" of which there were only five for all of England ("Clearers" meaning they could offer checking accounts and clear them) and not surprisingly, make a packet of money from the monopoly they held.  It was a political effort, focusing on service to the "little people" and giving, in some cases, free banking services if one had a credit balance (the liberal use of overdrafts has been a fixture of British banking).  As one might guess, the bank had close ties to the Labor Party.

All was well and then came 2007 and the bank got the bright idea to purchase Britannia which of course needed political approval.  Here, things get a bit murky.  The merger went through in 2008 which you might remember was not a highlight year for banking anywhere.  What still has yet to be revealed is who and what kind of due diligence--as we say in the trade--was done on the books of Britannia whose business was heavily real estate related at a time when a person comatose knew that real estate was not exactly the sector in which to become involved.  To make a long and sad tale short, Co-op went into effective receivership in 2012 and last week announced that it would probably suffer multiple billions in losses which required the total destruction of all subordinated debt (and probably senior debt as well) along with a additional shopping list of nasties if outright bankruptcy was to be averted.

As mentioned, the Co-op was quite close to the Labor Party but perhaps not surprisingly was the management of Britannia as well.  Another question that is being asked is who did whom a favor in this rather bizzare acquisition given the timing within the market place?  And where were the regulators who had to oversee the transaction who should have at least had a clue that all might not be well at Britannia as today it has been shown that Co-op's problems can be laid almost entirely at the door of Britannia.  Asleep at the switch?  Stone cold dead is more like it.  But I am being  judgemental as to the performance of our Cousins across the pond when I need but look at our selves.

As more information emerges, I cannot help but compaire the present case with the ongoing examination of Countywide and B of A.  Here, a politically connected CEO of a major mortgage lender agrees, in the midst of a world-wide financial melt-down of the industry in which he is involved to sell his institution to another and receives the blessing of every regulator involved in the transaction.  Whilst B of A remains and on-going institution, shareholders have lost billions in value. The comparisons are stunning.  Was this, like Co-op/Britannia an arms-length transaction involving shoddy risk evaluation on all fronts or were these failed attempted to staunch the collapse of major financial institutions on the part of political and regulatory authorities using shareholder funds and public debt holders' interests?

The thing that troubles me is that we may get to the bottom of the Cooperative Bank affair far sooner than we come to the end of the saga of the Bank of America.  Maybe it's because our Brit Cousins are far more familiar with scandals involving their politicians...although most of those in the past have been far more racy than this one although, admittedly, there is still time.  But I must admit, the juxtaposition of the two, taken with the revelations of the past month in D.C. have fully shaken my in the simple honesty of the system.  To say we are no worse than others is not a saving grace.  It is a greater condemnation.  We are supposed to be better.  I hope we can be.