UK Financial mis-selling at its worst

I am one of 20 or so people who made written representations to the FSA after the members of the Britannia Building Society had voted to approve the merger of the society with The Co-operative Bank Ltd.

Setting aside that the transaction is strategically wrong – why does the UK’s #2 building society by assets need help when it complies with the FSA’s capital requirements? – the transaction was mis-sold.

The bulk of documentation and all the publicity surrounding the “merger”, referred to a merger between the society and Co-operative Financial Services Ltd. This is incorrect and misleading. The CFS is the owner of the eponymous bank, but as anyone in business knows, a holding company is a separate legal entity from a subsidiary. The transaction was described as a merger with the holding company; the vote was for a merger with its subsidiary.

Merger implies that the parties merging are broadly equal and that shareholders in each party will end up with an ownership interest in the merged entity. This is not the case here as Britannia members will have no interest in the enlarged bank. Society members are being offered membership of the Co-op Group but this is the holding entity for CFS. Returns to society members will therefore be diversified and diluted not only by the Insurance business of CFS but also by the returns from Somerfield/Co-op supermarkets, housing development, undertakers and pharmacies, to name but a few.

The accounting for the transaction is a straightforward transfer of the net assets from the Society to the Co-op bank. At the end of December 2008, the net book value of the Society was GBP881 million – and this, in effect, is simply being given to the Co-op Bank’s shareholders. I am not expecting a windfall payment but for the Society’s board to imply that giving away the Society at a cost of over GBP200/member (assuming 4 million members) was the best deal they could get, is suspiciously mendacious.

Of course the representations to the FSA will be considered – but ignored. The documentation for the deal was passed to FSA for its prior approval. But just in case someone there has forgotten the definition of mis-selling, I attach the link to the FSA’s website.
http://www.fsa.gov.uk/Pages/Library/Communication/PR/2003/052.shtml

Should it still be signed off by the FSA, it will no doubt be discussed at a higher place. The Treasury Select Committee will bare its teeth and get to the bottom of the matter and then, led by its Chairman, John McFall MP, decide that apart from a couple of slapped wrists, it is all hunky-dory.

Did I mention the Co-op Party? Society members after years of no political donations will now find that the new owners of their assets are funding the Labour party. The Co-op Party has 29 MPs who stand as Labour Co-op members.

Labour Co-op is abbreviated to Labour even on official documentation. How do I know? The published list of members of the Treasury Select Committee describes the following:- Rt Hon John McFall MP (Chairman), West Dunbartonshire, Labour.

Society members are being undertaken to the cleaners.