City advisers got £8.3m for Co-op deal but didn't check fatal loans

KPMG and JPMorgan say they weren't asked to look at toxic mortgages, so didn't

Co-operative Bank's auditors of 30 years did no due diligence on the commercial property part of Britannia Building Society's loan book that watchdogs say broke the bank, MPs were told yesterday.

Those auditors also said there was "nothing" in the behaviour of Paul Flowers, the bank's former chairman, that suggested he would fall so dramatically. Mr Flowers is on police bail having been filmed allegedly buying drugs. It also emerged that "inappropriate but not illegal" material had been found on a laptop sparking his resignation from Bradford Council.

Appearing before MPs on the Treasury Select Committee, KPMG partner Andrew Walker said the auditor's due diligence work had looked only at "specific risk areas" agreed with the bank's board. KPMG had only been given access to information on the Britannia's 10 biggest commercial clients, he said. It was paid £1.3m for its work on the deal.

Although he had not seen the crucial commercial loan book, Mr Walker said in one report that the bank's capital position "should not be compromised" by the deal. He said he did not regret saying that.

"We could see that the bank was in excess of its capital requirements and so our report was referring to that. The bank remained above its headlines."

But he said this was not a statement of the robustness of the deal.

"That was [a decision] for management to make."

He also defended the bank's board.

"The board was asking the right questions in terms of the risks," said Mr Walker.

His colleague, Jonathan Hurst, later said that there was "nothing that made me particularly concerned" about either the board's behaviour or its decision making. He said there was no indication in Mr Flowers' behaviour that such lurid allegations would arise. Mr Walker said colleagues had subsequently assessed their work: "We have looked back. We considered the due diligence carefully and we concluded it was a thorough piece of work."

The committee heard from the audit firm as part of its inquiry into the collapse of Co-op Bank's attempt to buy the Verde branches from Lloyds. That will now be floated as TSB.

Mr Walker also defended his signing off of the accounts in 2012 shortly before regulators identified a £1.5bn capital shortfall.

MPs also took evidence from JP Morgan, the investment bank, which it emerged had received a £7m fee for the deal, including a £5m success payment. The bank's evidence said it gave a "fairness" opinion on the transaction but said it was for the board to make a commercial judgement on it.

Tim Wise, managing director of UK investment banking at JPMorgan admitted that the fee was "significant" but said "that is the way that the industry works". He agreed with KPMG over the controversial commercial loan book, that it was the Co-op's board and management team that had the "real expertise in this area".

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sheridan Maine: Accounts Assistant

£30,000 Annual: Sheridan Maine: A fantastic opportunity has arisen for a perso...

Richard Bishop: Accounts Payable Clerk

£11 - £13 Hourly Rate: Richard Bishop: Are you looking for a purchase ledger r...

Recruitment Genius: Financial Services Administrator

£16000 - £18500 per annum: Recruitment Genius: This leading provider of financ...

George Parlour: Client Billings Assistant

£15 - £17 Hourly Rate: George Parlour: Do you have experience in media billing...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor