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p>One of Adair Turner's more memorable quotes from his stint as chairman of the Financial Services Authority, dates from 2010 when he told the UK's mutuals to “stick to their knitting” and avoid getting involved in the riskier areas of financial services, on account of their "limited skill sets".
Under questioning by the Treasury Committee, he added: “I think the biggest mistake we made was to allow our mutual sector, in some cases, to extend beyond the core business of prime real estate lending."
But Lord Turner's insights were too late for the Co-op, which in 2009 embarked on a merger with Britannia Building Society. Full of optimism, the parties declared they would create "something special" in UK financial services i.e. a member-owned bank, customer-led and ethically guided.
What a shame it all went wrong - and how incredible, given that the financial crisis was well underway by 2009, and one of its main causes (reckless lending) fully understood.
One can only assume that the limited skill sets referred to by Lord Turner meant that the perils of Britannia's balance sheet went undetected, given that Britannia's Platform sub-prime lending unit was a long way from knit one, purl one.
Moody's, on the other hand, has no such limitations and in May downgraded Co-op Bank's financial strength rating to E+ - saying the lender faces further substantial losses in its non-core portfolio, as demonstrated by the "significant" deterioration of its commercial real estate loans.
The bank's problem loan ratio increased to 10.9 per cent at year end 2012, up from 8.1 per cent in 2011, and with a low level of provisions and slow progress in realising the benefits of the Britannia merger to boot.
Little wonder that Co-operative Group pulled out of its proposed acquisition of Lloyds branches, although abandoning the deal means growth targets will have to be met organically - which Moody's considers a "challenging" proposition, given the bank's capital position.
So what are the consequences for the industry? Press comment has ranged from shock to indignation; exasperation to anger and fatalism to hilarity and comeuppance.
On a personal note, I was asked that question immediately after Co-op Bank unveiled plans to plug the £1.5 billion hole in its balance sheet. A client enquired: "Does today’s news improve the climate for lending?" I can't really print my response here, but with hindsight it was light on expletives, given that Co-op bond holders don't seem to be taking their "bail in" option lying down.
Even if all goes to plan, subordinated debt holders will end up owning "a significant minority stake" in the bank, raising the question of whether it will be able to maintain its ethical stance.
And on the subject of ethics, when the bank was happily promoting itself as ethical, we have to ask what ethics were governing the management of its balance sheet?
From conversations around the industry, I am aware that some bankers are feeling somewhat smug at seeing the Co-op knocked off its ethical perch. One senior contact was keen to point out that other banks have ethical policies too, commenting: "They got their comeuppance - maybe they should have bought a calculator!" With another banker summed up "he who crows too much is destined for a fall".
Let's hope that Richard Pennycook, who has just taken over as group finance director, comes suitably equipped - he arrives having spend nearly eight years at Morrison Supermarkets and was previously group finance director of RAC.
Hmm... "Labour and Wait" is the motto around the wheatsheaf logo of the original Co-op movement. The mutual will certainly have to spend time and effort (and possibly other people's money) correcting its imbalances and restoring liquidity.
The process is likely to be medium-term at best, and have unfortunate consequences. According to the word on the street, business development jobs are already being shed, which I for one lament - as Co-op Bank's team was good and ahead of the field when it came to funding for renewable energy.
The bank will also have to labour and wait to restore faith in itself - a process that will inevitably involve a reduction in size and possibly re-emergence as a challenger bank - that is a challenger bank under new ownership.
For sure, the waiting will depend on how much dirty washing has yet to be laundered - according to reports the bank is at odds with its bondholders and facing harrowing and expensive times as it contests legal action.
So the old motto "Labour and Wait" should come in handy - what a shame is was forgotten in terms of prudence when Co-op rushed in to acquire Britannia.
One of Adair Turner's more memorable quotes from his stint as chairman of the Financial Services Authority, dates from 2010 when he told the UK's mutuals to "stick to their knitting" and avoid....
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