Softly softly Co-ops merger pays off

IT has to rank as one of the cuddliest mergers ever - and one of the slowest. The marriage of the Co-operative Bank with Co-operative Insurance Services has generated barely a drop of spilt blood.

Nineteen months after the tie-up was announced, the two sides still appear from the outside as separate organisations. They have separate brands and head offices. Not one of the combined 14,000 staff has compulsorily lost their job.

In the private sector, such an approach would be unthinkable. Architects of Plc mergers argue that the coming-together has to be fast and brutal. Jobs have to go, fiefdoms must be smashed and cultures shaken up for mergers to be successful.

But Mervyn Pedelty, chief executive of both organisations and of their new parent body, Co-operative Financial Services, has rejected the 'cruel to be kind' option and gone for a sensitive approach more in tune with the ethical image of a customer-owned co-op.

Results on Thursday from the Co-op Bank suggest he may have the right idea. It reported its 19th successive half-year of profits growth, with pre-tax profits of £75.3m, up 10%, thanks to booming demand for online service Smile and a reduction in bad debts. CIS, which reports later this month, is expected to bounce back from a difficult prior year with quadrupled profits of about £30m.

CFS, part of the wider supermarkets-to-funerals Co-op Group, seems to be thriving. With 7m customers, £30bn of assets and annualised profits of close to £200m, it would be valued at more than £2bn if it were a listed company.

Below the surface, Pedelty is beginning to hammer the two sides together. The 3000 CIS sales reps are 'very successfully' selling Co-op Bank mortgages while Co-op Bank counter staff are starting to sell CIS home and contents insurance. There have been no savings from reduced headcount. In fact, staff numbers are up by 200 and the cost/income ratio - a key measure of efficiency - has worsened. 'This is not like Royal Bank of Scotland buying NatWest,' explains Pedelty.

As for a single brand, Pedelty, while hiring consultants, is cautious: 'Corporate history is littered with organisations which made hasty brand decisions and lived to regret them.'