Why Labour isn’t really severing its ties with the Co-op Bank

Interesting story from the BBC that Labour is going to cut its link with the embattled Co-operative Bank.

Forget for a moment that the bank was already reviewing its relations with the party. The apparent move to Unity Trust Bank – the trade union bank – is hardly severing links with the Co-op.

Unity Trust was founded as a joint venture between the Co-op and the trade unions in 1984. It might be intriguing enough if Ed Miliband’s party now had a bank whose president is Unison leader Dave Prentis. (Billy Hayes of the CWU, Paul Noon of Prospect and the RMT’s finance director are also on the board).

Miliband could be seen to have reformed the union funding link only to have turned it into bank loans rather than donations. But that’s not the point.

Unity Trust bank right now is functionally part of the Co-op Bank. The Co-op’s 27 per cent shareholding is one thing. But more important is that the bank’s articles of association demand that Co-op controls Unity Trust.

Regulators  (the Bank of England now) naturally demand that bankers, not union leaders, run banks. Therefore, despite its minority shareholding, the Co-op Bank appoints the majority of the board, the chairman and the MD.

That means the Co-op Bank’s own risk director and financial control director sit on the board of Unity Trust Bank.

Now Co-op did appear to be trying to sell its stake. But this has not happened yet, and as another bank would have to buy the share in order for unity trust to retain its banking licence, I imagine this will be a rather lengthy process.

So right now this is far from a case of Labour severing a link with a bank facing more embarrassing reports, and more akin to changing the part of Co-op to which the party is linked.

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