KPMG is being investigated over its role as auditor to the troubled Co-operative Bank, which almost collapsed last year, and could face a massive fine
The Financial Reporting Council today launched an investigation into the “preparation, approval and audit” of Co-op Bank’s accounts up to 2012.
KPMG has audited the Co-op Group and the Bank for more than 30 years and also advised it on deals including the takeover of Britannia Building Society. Last year it collected £7.4 million in fees from the Co-op including £3.3 million for advising on its aborted purchase of the “Project Verde” bank branches from Lloyds Banking Group.
The FRC has taken, on average, about a year to complete such investigations which pave the way for a full Disciplinary Tribunal. The tribunal can, in turn, impose sanctions, fines and costs on the audit firm and individuals.
The largest fine imposed by the FRC was £14 million on Deloitte for its corporate finance work for MG Rover. That was ten times the next highest fine, which was against PwC for its work for JP Morgan Securities in London.
The audit partner for Co-op Bank for the past five years was Andrew Walker while Jonathan Hurst is audit partner for the group. Together with Warren Mead, the financial services, transactions and restructuring partner, they appeared before the Treasury Select Committee last December.
KPMG said today it would co-operate with the investigation but added: “As auditor to the bank we believe that we have provided, and continue to provide, robust audits which provide rigorous challenge to the judgements and disclosures proposed by the bank’s management.”
Meanwhile, Co-operative Group performed a U-turn today, saying it has halted plans to sell its general insurance business as part of the bail-out of its troubled bank.
Last March, before the arrival of new chief executive Euan Sutherland, Co-op said it would sell both its general and life insurance businesses as part of its plan to inject £1 billion of capital into the near-collapsed bank.
But after last month’s £1.5 billion refinancing of the bank, which saw hedge funds take control, Co-op Group needs to inject only £333 million. It has already raised £220 million of that through the sale of the life and savings business to Royal London.
The general insurance business has 1.4 million customers and made operating profits of £28 million in the first half of 2012, and Sutherland has decided it is better to keep it.