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Co-op to stop council banking

Co-operative Bank is to stop providing banking services for more than 100 local authorities as it seeks to narrow its focus on retail and small business customers.

The lender wrote to councils on Tuesday to explain the decision, a day after it unveiled a rescue plan to plug a £1.5 billion hole in its finances.

It has already said that it will run down "non-core" parts of its business including loans to housing associations. Earlier this year, the bank said it was stopping lending to all new corporate customers.

The Co-op has just under 130 local authorities as customers. In its letter to leaders and chief executives, it explained how it was narrowing its focus to individuals and small-to-medium sized enterprises (SMEs).

"This means that we will be seeking to exit some banking relationships which do not meet our future risk appetite or which have comprehensive and complex banking requirements," the letter said.

"As part of this strategy, we have decided to withdraw from our involvement in providing banking transmission services to local authorities."

The bank will now not seek to renew these banking contracts when they expire.

Its decision was criticised by consumer banking campaign group Move your Money.

Chief executive Laura Willoughby said it was a "short-sighted move" out of a market that was profitable and being targeted by the big banks.

"Local authorities need to be able to choose from a competitive market and find banks that share their values and aspirations," she said.

"Instead, this announcement leaves their choices virtually non-existent. It gives the big five banks a clean run at public money."

The Co-operative bank boasts on its websites that the local authorities that bank with it represent 35% of all in England and Wales "which has helped earn to us a great reputation as specialists in the public sector".

It says: "We understand how public sector organisations work, and we have specially developed products and services specifically designed for public sector organisations in order to provide an added value banking service.

"In recognition of the excellent service that we provide to public sector clients, over 50 local authorities have transferred their core banking to us during the last 10 years."

The bank's rescue, whose details were announced earlier this week, will see around 50 branches close and bond investors including US hedge funds given 70% of the business, leaving the parent Co-operative Group with a 30% stake.

It comes after a huge gap in finances was discovered following the purchase of the Britannia Building Society and abortive plans to buy hundreds of Lloyds branches.

The loss of control of the bank by the wider Co-op group has raised concern among some of its customers. It has traditionally attracted organisations such as trade unions and charities because of its ethical approach.

But the Co-op has said its values and ethics would be "legally embedded" in the lender's new rules.

Peter Marks, former chief executive of the group, has described the fate of the bank as a "tragedy".

A spokesman for the Local Government Association said: "We think the move is regrettable but respect the Co-op's decision and welcome their commitment to help councils change banks at the right time for them.

"As always, local authorities will decide what to do next based on the interests of their residents."

The bank said in a statement: "In line with our renewed focus on serving individuals and small and medium-sized businesses, the Co-operative Bank has regrettably taken the decision to exit some banking relationships.

"Customers will continue to have access to current banking services as they look for an alternative provider and we are committed to working with them to ensure a smooth transfer of banking operations."


From Belfast Telegraph