Co-operative Bank report blames 'disastrous year' on governance

Sir Christopher Kelly’s findings will be published next week

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A new independent report into the Co-operative Bank's 'disastrous year' is set to be scathing about former executives and board members.

Sir Christopher Kelly’s report is due to be published next week but a draft version says the seeds of the near collapse of the bank lay with its takeover of Britannia Building Society in 2009, according to the BBC.

Co-op Group, which commissioned the independent report last July, declined to comment on Kelly’s findings, which will be published ahead of the mutual’s annual meeting on May 7. It is understood Co-op Group has not actually seen the draft report but individuals named in it have.

These are likely to include Neville Richardson, the former chief executive of Britannia and then Co-op Bank, Peter Marks, the former chairman of Co-op Group, and Barry Tootell, a former chief executive of the bank who led it in the aborted attempt to take over 630 Lloyds branches known as Project Verde.

The report is also said to be highly critical of Co-op Bank’s governance and could single out individual board members, including former chairman Reverend Paul Flowers, who has been charged with drug offences.

It will also mention the £1.6 billion takeover of rival supermarket chain Somerfield, which took place in 2009. Although this was not specifically in Kelly’s brief, he is expected to say it took up much of management’s attention, which should have been spent on the bank and its Britannia deal. Last week, Co-op Group interim chief executive Richard Pennycook revealed the group will have got rid of 60 per cent of the Somerfield stores it bought by 2016.

Kelly, a former career civil servant and chairman of the Committee on Standards in Public Life, began his review last September. His spokesman said today: “This is an independent review which Sir Christopher Kelly is due to publish next week. We cannot comment further.”

The report is expected to say Co-op’s due diligence over Britannia was “extremely cursory” and that the group was “culpable”. This is likely to be challenged by some of those named in the report who could claim that it is factually inaccurate.

The collapse of Project Verde led to the discovery of the £1.5 billion gap in Co-op Bank’s balance sheet. This, in turn, sparked its bail out mainly by US hedge funds which owned its debt and swapped its for a 70 per cent stake in the bank.