The Church chose to join forces with a group of private equity funds and investment funds led by Lord Davies. The new bank management should be prepared to alter its business strategy if this consortium manages to outbid its competitors. RBS has to sell its branches because the European Commission demanded it and forced the bank to commit to the sale in order to obtain a bailout from the European authorities
It is not the first time for the Church of England to be engaged in financial investments, but it is the first attempt to acquire a significant stake in a commercial bank. Judging by the Church’s previous forays in investing, the management of the bank will be subjected to considerable pressure. The bank will be barred from investing or lending to companies that operate “unethical” businesses like pornography, gambling, tobacco, alcohol or firearms production. History shows that “sinful” investments outperform the broad market indexes in both bull and bear markets. The VICEX mutual funds that invests only in companies operating in gambling, alcohol, tobacco and firearms businesses is one of the top performing funds of the world. Since 2003, the fund returned 150% on every dollar invested in it.
The bank’s management will also have to respect strict rules of corporate governance and a moral code designed by the clerics. The sheer amount of organizational and operational restrictions imposed by the Church makes it a very uncomfortable investor from the mangers’ standpoint.
At the same time, the clerics have a very high profit target set for their future bank. They want a return on equity equal to at least the index of price inflation plus five percent per year. The Church’s desire for a very high profit is very hard to reconcile with the restrictions placed on the banks’ management.