Hugh Fasken talks to Dick Parkhouse,
managing director, retail, at Co-operative Financial Services. CFS,
looking to merge with Britannia Building Society to form an
£80-billion-asset ‘super mutual’, posted a 70 percent rise in
banking profits for 2008 as record numbers of customers migrated
away from commercial banks.

The Co-operative Bank benefitted from an
upswing of some 640 percent in the number of new customers joining
it from Royal Bank of Scotland across the period March 2008 to
March 2009. The figure for HBOS was 236 percent, Lloyds, 165
percent, and Alliance & Leicester, 144 percent.

Dick Parkhouse, managing director, retail, at
Co-operative Financial Services (CFS), the bank’s parent, tells
RBI it even saw larger-than-expected numbers of customers
migrate to it from more resilient competition: HSBC’s First Direct
and Nationwide Building Society.

The bank’s current accounts – in particular
its range of new packaged accounts rolled out last October (see
RBI 600
) – were the main beneficiaries of this flood of new
customers, said Parkhouse. In all, the number of current account
customers was up 65 percent year-on-year to 1.3 million; he added
that packaged accounts now make up 23 percent of the bank’s current
account portfolio compared to 13 percent on average for other UK
banks, and the product segment had now become a “significant part”
of its consumer banking strategy.

Mortgages were another strong performer in
2008 – and will be equally important in 2009. Buoyant funding from
deposits meant the bank could enhance its proposition, especially
for first-time buyers. The total value of mortgage completions was
up by 64 percent to £1.3 billion in 2008, added Parkhouse.

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He said that the average loan-to-value was
“prudent” at 53 percent, and though the Co-op Bank may look to
loosen its lending in 2009, it will remain cautious.

For 2008 as a whole, CFS reported a 5.4
percent fall in profit to £147 million. But its banking division
boasted a 70 percent rise in income to £86 million – what dragged
group earnings down was a sharp 87 percent fall in general
insurance profit to just £8.4 million. Interestingly, in a year
when many of its UK rivals suffered from rising loan delinquencies,
banking bad debts fell 5.1 percent to £96.8 million. Customer
deposit balances increased by 20 percent to £10.6 billion and now
represent 107 percent of lending (versus 104 percent at end-of
2007)., the direct banking brand of CFS,
finished 2008 with 374,000 current accounts holding £390 million
and £1.36 billion in savings deposits. Parkhouse implied that CFS
has yet to fully exploit its online channel – it accounts for
between 10 to 15 percent of transactions compared with up to 50
percent for some UK banks.

Parkhouse takes particular pride in the Co-op
Bank winning awards in 2008 for its products and also customer
service; top customer service accolades came from the leading UK
consumer association Which? as well as US research group JD Power.
“I know a lot of banks talk about superior customer service but I
think we do offer a fundamentally different and better proposition.
We are less concerned with time spent serving them and more
concerned about serving their needs, and it is paying off for

He says that the bank will “absolutely” use
the momentum earned in 2008 to build its business in 2009 and take
market share from the established – and troubled – UK commercial
banks. For example, CFS, which is part of the wider Co-operative
Group of companies (which has 4,500 outlets in the UK including the
fifth-largest grocery chain), hit the UK market in February with a
major advertising campaign.

The campaign, built around the highly ethical
nature of the group’s banking business, scored two firsts for the
UK: the first time the US folk singer Bob Dylan agreed to let his
songs be used in a UK advert; and the first time any company had
taken an entire mid-programme ad slot for itself (three minutes in
all in the middle of the country’s most-watched soap opera,
Coronation Street).

CFS launched a new ‘in store’ banking pilot to
test delivery of banking and insurance facilities within The
Co-operative Food stores last year as well (much like
, see Tesco ups gear in retail banking play). It
says a much closer working relationship with other group businesses
have helped total group membership grow to over 3 million

Moreover, CFS may soon double in size
following its acquisition of the second-largest UK building
society, the Britannia (see RBI 606). A vote is due on 29
April at Britannia’s AGM; if passed, the combined group will have
nine million retail customers, 354 branches, deposits of £30
billion, assets of £78 billion and retail lending of £27

Asked if member-based mutual banking models
such as those operated by CFS and Britannia have been vindicated in
the wake of the global financial collapse and the state bail-outs
of five UK commercial banks (Northern Rock, Bradford & Bingley,
RBS, Lloyds TSB and HBOS – see RBI 605), Parkhouse says:
“I think that fact that we’ve have seen a 65 percent increase in
current account customers speaks for itself. People believe the
model is more attractive, especially at a time like now, and
customers are coming to us.”

Balance sheet

Co-operative Financial Services –
assets and liabilities, 2008 vs. 2007


2008 (£bn)

2007 (£bn)

% change

Total assets




o/w investments




o/w loans




Total liabilities




o/w deposits




o/w insurance and investment contract








Source: CFS