It would be accurate to say that the Co-op has had a bad year

Reflections on today's news.

It all seemed such a good deal, as recently as last July. I broke off from my holidays to tell BBC radio Five Live, Radio 2, the rolling BBC news channel and just about anyone else that would listen, what a good deal the Co-operative Bank had struck to snap up 632 branches from Lloyds Banking Group.

The Co-op was to pay a mere £350m up-front for the branches with up to a further £400m based on the performance of the branches over the next 15 years. I may even have called it a bargain. Okay, to be strictly accurate, I actually called it something approaching an absolute steal. By contrast, Santander had agreed to acquire 316 branches from Royal Bank of Scotland in a deal worth around £1.65bn. Santander subsequently pulled out of that deal, blaming IT challenges relating to the acquisition.

That argument was rather less than convincing, given Santander’s stellar record in tackling IT issues arising from its earlier purchases of Abbey, Bradford & Bingley and Alliance & Leicester. Had Co-op managed to conclude its agreement with Lloyds, it would have had a UK current account market share of around 7 per cent (up from 3 per cent) and would become the 7th largest UK bank by current account market share and the 6th largest bank as ranked by branches.

Lloyds dominates the current account market share with 31 per cent, ahead of RBS NatWest with 16 per cent and Barclays and HSBC/First Direct each with 14 per and Santander with 11 per cent.

The relatively modest Co-op branch network of 340 units would have almost trebled to more than 970 outlets, once it rebranded 283 Lloyds TSB branches in England and Wales, 164 Cheltenham & Gloucester branches and 185 Lloyds TSB Scotland branches. Today, the Coop/Lloyds deal is in tatters. And today on BBC news I felt a little uncomfortable when I suggested that perhaps, on reflection, the Coop was acting prudently in not stretching itself to finalise the branch purchases. I would be quite happy if everything I had written and said regarding the Lloyds-Coop deal last year could be quietly and immediately deleted.

According to the Co-op, it has chucked in the towel because of the current economic environment. The economy is none too chipper, but arguably not a lot has changed since last July. The Co-op also argues that the increasing regulatory requirements on banks mean that the deal no longer makes sense. Again, pull the other one.

There is an increasing regulatory burden on banks, it is true. There are these tiresome new rules for the banks relating to miss-selling; no more jackpots await such as the bonanza they struck from selling PPI insurance to customers who might want to take out a loan. There are also tighter rules relating to putting away adequate levels of capital for a rainy day. All of these rules were well known last July.

It would be more accurate to say that the Co-op has had a bad year. It lost £600m in fiscal 2012 and has faced bigger challenges to fund the deal than they – and this writer – forecast a mere nine months ago.

It may also be fair to suggest that the rapid transformation in the way the majority of us do our banking is swaying thinking within the Coop?

"The branch is dead" and "the branch has no future" are ridiculously gloomy and inaccurate regular forecasts from digital (internet and mobile) banking evangelists. But, and it is a big but the size of a flagship Apple-type banking store, we are using branches less and less.

Branches need staffing and branches are expensive compared to offering digital banking. That kind of thinking is heard more and more from senior retail bankers.

Perhaps the recent explosion in customer numbers using internet and mobile banking means that the Co-op’s enthusiasm to treble its high street presence is on the wane. In the UK, 55 per cent of internet users accessed an online banking site in December 2012 - ranking the UK as the 4th most enthusiastic internet banking country within the EU27 – against the European average of 39.9 per cent.

Last year, Lloyds for example, has over 10m unique visitors to its internet banking site, up 14 per cent year-on-year; RBS NatWest and Barclays followed with 6.4m and 6.3m visitors respectively. For the record, HSBC (with 3.4m) and Santander (2.6m) rounded off the top 5.

Smartphone penetration in the UK has now reached 64 per cent, again, way ahead of the European average. All UK banks, including now the Co-op, offer some form of mobile banking. Tablet computer use is also going through the roof and banks are slowly but surely starting to offer tablet banking as an additional service. For the Co-op, there remains the untapped potential of using more if its retail supermarkets to offer a dedicated area offering banking services. The background to the sale of the branches (known as Project Verde), was forced by European Union regulations after Lloyds was bailed out by the UK taxpayer to the tune of £20bn during the 2008 financial crisis.

So what now?

Estimates suggest that Lloyds has already spent almost £1bn during the Verde project in an effort to dispose of the branches. The abortive deal will also have cost the Coop an eye-watering sum. Lloyds will go back to the drawing board and will dust off its plans for an IPO: in other words, try and sell the branches in the market. The timing is not great. Next year will be a busy time for branch sales. RBS is still to dispose of the 318 outlets it failed to sell to Santander and needs to get a move on before it incurs the wrath of the EU. Neither RBS nor Lloyds are likely to be thrilled with the eventual sales proceeds.

One last thought arises from the branches sales saga. Banks, including Co-op and Santander, may well be proved correct if they believe that they can meet their expansion targets without the need to bulk up their branch networks. Reliance on the digital banking channels will however mean that they have no option but to offer reliable mobile and internet banking services offering a compelling customer experience. Due emphasis requires to be placed on the word ‘reliable’, as RBS knows to its embarrassment following its two high profile service collapses in the past year.

Photograph: Getty Images

Douglas Blakey is the editor of Retail Banker International

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The biggest divide in politics is not left against right, but liberals against authoritarians

My week, including a Lib Dem membership rise, The Avalanches, and why I'm putting pressure on Theresa May over child refugees.

It is a boost for us that Nick Clegg has agreed to return to the front line and be our Brexit spokesperson. I hadn’t even had a chance at our meeting to make him the offer when he said: “Before we start, I’ve been thinking about this and want to take on the fight over Europe.”

With Labour apparently willing to give the Tories a free pass to take us out of Europe, the Liberal Democrats are the only UK-wide party that will go into the next election campaigning to maintain our membership of the EU. The stage is remarkably clear for us to remind Theresa May precisely what she would be risking if we abandon free trade, free movement, environmental protection, workers’ rights and cross-border security co-operation. More than a month on from the referendum, all we have heard from the Tories is that “Brexit means Brexit” – but they have given us no clue that they understand what that means.

 

Premature obituaries

Not long ago, the received wisdom was that all political parties were dying – but lately the supposed corpses have twitched into life. True, many who have joined Labour’s ranks are so hard left that they don’t see winning elections as a primary (or even a desirable) purpose of a party, and opening up Labour to those with a very different agenda could ultimately destroy it.

Our experience has been happier: 20,000 people joined the Liberal Democrat fightback in the wake of the 2015 general election result, and 17,000 more have joined since the referendum. We now have more members than at any time this century.

 

Breaking up is hard to do

Journalists have been asking repeatedly if I want to see the break-up of the Labour Party, with moderates defecting to the Liberal Democrats. I have been clear that I am not a home-wrecker and it is for Labour to determine its own future, just as I focus on advancing the Liberal Democrat cause. Yet I have also been clear that I am happy for my party to be a home for liberals of whatever hue. I enjoyed campaigning in the referendum with a variety of progressive figures, just as moderates from different parties shared platforms in 1975. It struck me that far more unites us than divides us.

That said, not all “moderate” Labour figures could be described as “liberal”, as John Reid demonstrated as Labour home secretary. The modern political divide is less left v right than authoritarian v liberal. Both left and right are looking increasingly authoritarian and outright nasty, with fewer voices prepared to stand up for liberal values.

 

What I did on my holidays

Time off has been virtually non-existent, but I am reading A Wilderness of Mirrors by Mark Meynell (about loss of trust in politics, the media and just about everything). I’m also obsessively listening to Wildflower by the Avalanches, their second album, 16 years after their first. It’s outstanding – almost 60 minutes of intelligently crafted dialogue, samples and epic production.

During the political maelstrom, I have been thinking back to the idyllic few days I spent over half-term on the Scottish island of Colonsay: swimming in the sea with the kids (very cold but strangely exhilarating ­after a decent jog), running and walking. An added bonus is that Colonsay is the smallest island in the world to have its own brewery. I can now heartily recommend it.

 

Preparing for the next fight

The odds are weirdly long on an early general election, but I refuse to be complacent – and not merely because the bookies were so wrong about Brexit. If we have learned one truth about Theresa May as Prime Minister so far, it is that she is utterly ruthless. After her savage cabinet sackings, this is, in effect, a new government. She has refused to go to the country, even though she lectured Gordon Brown on the need to gain the endorsement of the electorate when he replaced Tony Blair. Perhaps she doesn’t care much about legitimacy, but she cares about power.

You can be sure that she will be keeping half an eye on Labour’s leadership election. With Jeremy Corbyn potentially reconfirmed as leader in September against the wishes of three-quarters of his MPs, Mrs May might conclude that she will never have a better chance to increase her narrow majority. Throw in the possibility that the economy worsens next year as Brexit starts to bite, and I rule nothing out.

So, we are already selecting candidates. It is vital that they dig in early. As we are the only party prepared to make the positive case for Europe, such an election would present us with an amazing opportunity.

 

Sitting Priti

David Cameron pledged to take an unspecified number of unaccompanied children from camps across the Continent. I am putting pressure on Theresa May to turn that vague commitment into a proper plan. Having visited such camps, I have been fighting for Britain to give sanctuary to a minimum of 3,000 unaccompanied children, who are currently open to the worst kinds of exploitation. We have heard nothing but silence from the government, with underfunded councils reporting that they are not receiving the help they need from Whitehall.

Meanwhile, it remains government policy to send refugees to Turkey – whose increasingly authoritarian government has just suspended human rights protection.

As if all of this were not grim enough, we have a new Secretary of State for International Development, Priti Patel, who has said that she thinks aid should be used largely to promote trade. As someone who wants our country to be respected around the world, I find this plain embarrassing. Actually, it’s worse. It’s shaming. As with Europe, so with the world: the ­Conservative government is hauling up the drawbridge just when we need more than ever to engage with people beyond our shores.

Tim Farron is the leader of the Liberal Democrats. To join the party, visit: libdems.org.uk/join

Tim Farron is leader of the Liberal Democrats.

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue