Co-op investment will bring joy or dread

The good news is that a group of US hedge funds have decided they like the potential of the Co-op bank so much they want to own more than a third of the shares and have a say in its future. The bad news is that a group of US hedge funds have decided they like the potential of the Co-op bank so much they want to own more than a third of the shares and have a say in its future.

Depending on which side of the fence you sit, today’s news will either bring joy or dread to your heart.

For some, Hedge funds are not nice beasts. They raise money from other investors – typically pension funds and rich individuals – and then scour the market looking for “opportunities” to put that money “to work”.

But you could argue the fact they believe the Co-op Bank is one such opportunity is positive for the bank. The financiers like its prospects so much they didn’t want to own the new bonds originally being offered to them by the bank’s owners, the Co-op Group. Instead they went to the Group and said we want to own the shares instead. And what hedge funds want, hedge funds have a habit of getting. They will now own 35 per cent of the newly floated bank’s shares and have the right to nominate two independent non-executive members to its board. In other words, they’ll certainly have influence in the day-to-day running of the bank, both through their holding and through their pals on the board.

Of course to some though, this is terrifying stuff. The idea that the money men are taking control of the Co-op may be the worst outcome precisely because all the money men care about ultimately is money, and getting a return on their investment. They’re not known for caring too much about the ethical nature of investments so long as those investments are chucking out good hard cash.

The Co-Op Group’s boss assured me today that enshrining its ethical values  into the bank’s articles of association was a key part of the deal. As is the introduction of an independent body to oversee the bank’s adherence to those values. But he also conceded the hedge fund’s will have a say, given the size of their investment. And that will certainly lead to big concerns for some. The snap shot of customers we spoke to today were clearly very jittery that their bank is now being partly run by financiers across the Atlantic. It’s a far cry from the Group’s inception in 1844 as a movement set up by the people, for the people.

But on the plus side, it is better than the British taxpayer having to step in and bail the bank out. And let’s face it, it wasn’t hedge funds that got this bank into its mess in the first place. It was good old fashioned Co-op managers who got too ambitious and tried to overstretch. The same story as RBS, Lloyds, Northern Rock – just on a smaller scale. Hardly ethical, as one Co-op adviser pointed out to me today.

So it’s true the Co-Op Group has had it’s original plan to retain a controlling stake in the bank turned on its head. It will now own just 30 per cent of the bank’s shares, albeit being able to call itself the “single” largest investor. And yes there’ll be bank closures and job losses, perhaps as many as a thousand employees will go. But the Co-Op bank was on its knees and inches away from collapse. Better it survives and is part-controlled by hedge funds, than desperately clings to its heritage and loses its fight for survival in the process.

Follow @siobhankennedy4 on Twitter.