Co-op Bank's near-collapse blamed on Britannia merger
Wednesday 30 April 2014
A major independent report into The Co-op Bank's near-collapse has said its merger with the Britannia building society “should probably never have happened”.
Sir Christopher Kelly’s 152-page report slams the bank’s then executive directors and overseeing board, with particular attention on Neville Richardson, who was chief executive of Britannia and took the same role at the Co-op Bank after the merger.
Kelly, a former Treasury mandarin, was asked by the Co-op to report on the £1.5 billion shortfall in the bank’s balance sheet which led to its bail-out by US hedge funds who took majority control last year. His report, commissioned last July, cost £4.4 million.
Former bank chairman Paul Flowers, who has been charged with drug offences, and Mark Hoban, who was Treasury Minister at the time of the bank’s aborted Project Verde takeover of 630 Lloyds branches, refused to talk to him.
Kelly said today that both the Co-op Bank and Britannia had problems at the time of the merger. And in a damning conclusion he said: “Bringing them together exacerbated these problems. It might have worked if the merged organisation had received first-class leadership. Sadly it did not.”
He conducted 130 interviews with current and former employees and examined hundreds of internal and external reports and added: “The lessons we set out are far from novel. It does no credit to those involved that they must be learnt again.
“The Co-operative Bank executive management failed to exercise sufficiently prudent and effective management of capital and risk. The banking group board failed in its oversight of the executive. The group board failed in its duty as a shareholder to provide effective stewardship of an important member asset. Collectively they badly let down the group’s members.”
Kelly also said he found no “compelling evidence of pressure from Government ministers or anyone else for the Verde transaction to take place. Indeed the regulator was consistent in pointing out the obvious difficulties. The Co-operative group and bank were capable of making mistakes without any help.”
Niall Booker, who became chief executive of the Co-op Bank last summer, said the report would “make very difficult reading for our customers” and he apologised again for “these past failings.”
Richard Pennycook, Co-op Group’s interim chief executive after Euan Sutherland’s shock resignation last month, called it “a sobering assessment” and said Lord Myners’ governance reforms should be implemented.
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