How Barclays PLC, Banco Santander SA & Royal Bank Of Scotland Group plc Can Benefit From Co-Op’s Demise

Piggy bank

Today’s news that Co-Op Bank has lost another £75.8 million in the first half of the year is perhaps unsurprising. After all, it appears as though the entity is in dire straits right now, with it being forced to raise an astounding £2 billion to plug a black hole last year and stating today that ‘deep-rooted’ financial problems remain. Furthermore, almost 30,000 current account customers left Co-Op Bank during the first half of the year alone.

This is, of course, good news for its rivals. Indeed, here’s how Barclays (LSE: BARC), Santander (LSE: BNC) and RBS (LSE: RBS) could benefit.

One Less Challenger

A key theme in the UK banking sector in recent years has been ‘challenger’ banks. The UK government in particular has been keen to improve the competitive landscape of the banking sector so as to reduce the power held by the major banks and has, therefore, promoted the establishment and development of institutions that could help to improve the offering available to customers.

One such ‘challenger’ bank is Co-Op. There were extremely high hopes for the bank, with it due to take over 600+ branches from Lloyds before its financial problems came to light. Clearly, the future Co-Op Bank is going to pose a far less serious threat to Barclays, Santander and RBS and this is likely to mean that they not only get to keep their market shares, but they could eat into Co-Op Bank’s share, too. This, in turn, means that there could be additional growth prospects on offer at Barclays, RBS and Santander moving forward, as the ‘challenged’ banks become the ‘challengers’.

A Shift In Focus

Another positive result of Co-Op’s demise for Barclays, Santander and RBS is that it reduces the product differentiation that is on offer to customers. Co-Op Bank had been viewed as the most dangerous of the ‘challenger’ banks simply because it brought something new and different to the banking space: ethical banking.

The Co-Op seemed to have the right sales pitch at the right time: banking customers were extremely unhappy with the behaviour of their banks during the financial crisis and were very open to a more ethical means of banking via the Co-Op. Now that it is part-owned by hedge funds, Co-Op Bank’s unique selling point has gone, which could allow Barclays, Santander and RBS to keep more of their customers.

Looking Ahead

Clearly, the present time is a tough one for Co-Op Bank. However, for Barclays, RBS and Santander it could be the start of a purple patch. Indeed, all three banks are due to be highly profitable this year and, furthermore, are set to increase earnings at brisk rates. Certainly, uncertainty remains (particularly at Barclays), but with the three banks trading on price to book ratios of just 0.65 (Barclays), 1.26 (Santander) and 0.39 (RBS), they all offer great value and, with Co-Op now on the way down, could be even stronger buys moving forward.

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Peter Stephens owns shares of Barclays, Lloyds and Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.