Why didn't FSA block Co-op's planned expansion?


Will the UK's financial regulators be cripplingly embarrassed by the Co-op's financial woes?

Perhaps not devastatingly humiliated, though perhaps mildly so - which means that there may be relatively more heat on the Treasury.

Here is why.

I am informed that the Financial Services Authority - which has now been broken up into the Prudential Regulation Authority and the Financial Conduct Authority - never approved the Co-op's abortive plan to acquire 631 Lloyds branches and thus treble in size.

Instead, a couple of years ago, it set the Co-op hurdles it had to get over to obtain that formal approval.

These hurdles were all officially, copiously and formally documented, and were about the amount of capital the enlarged bank had to have and operational capability, among other things.

I am reliably told that the Co-op Bank never surmounted these hurdles. One source said to me: "I never thought it would get over the hurdles; I never thought the deal would be done".

In the event, the Co-op pulled out of the planned takeover last month, before formally asking for the FSA's approval.

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I am told that the FSA did not feel it could block a deal that had so much support in Parliament.”

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So, if the regulator always had its doubts that that deal with Lloyds would be consummated, why was it negotiated so expensively over all those many months.

And why did the Chancellor give it public support?

A source told me it was all about "MPs love of mutuals" and "the hope in the Treasury that an enlarged Co-op would be a decent competitor to the hated giant banks".

'Sense of complacency'

But if the FSA was never persuaded that the merger made sense, shouldn't it have vetoed it?

Well, I am told that the FSA did not feel it could block a deal that had so much support in Parliament.

All of which may be understandable.

But if the world in general was given the impression by the FSA's silence and the Chancellor's eloquence that the Co-op was fit enough to swallow all those Lloyds branches and assets, those right at the apex of the Co-op group in the biggest broadest sense - the Co-op that includes supermarkets, funeral homes, and so on - may have been lulled into a sense of complacency about the true state of affairs at the Co-op Bank.

The non-bankers on the Co-op's top board may not have asked tough enough questions about the true state of health at their bank. Which would go some way to explain why they learned only recently that property loans Co-op Bank acquired in 2009 with the takeover of Britannia are pretty stinky and loss generating.

And another thing. If the FSA was happy to stand back from giving a formal opinion on whether the Co-op was the right buyer of the Lloyds branches, will its successor body, the PRA, still hold its peace now that questions have arisen about whether the Co-op should stay in banking?

With all the uncertainties about how the Co-op will fill the hole in Co-op Bank's capital resources, it seems unlikely that the PRA will remain quite so arms length.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 121.

    120 We have government commited to cut taxes and expenditure. There is no reason not to duscount the first £20 per week earnings with no tax or NI due and thus your £20 per week is front loaded with its profit at redemption in 10 years time. The product, the Redemption Bond is a tax rebate.

    The £312bn works your finances, govt's and banks with potential £1 trillion boost to the economy now.

  • rate this

    Comment number 120.

    106 thru 110 ~ tellitasitis ~

    £20 a week, that's £10k over 10 years to sort this mess out now?
    From 30million taxpayers is £312bn. The bond would be a treasury.
    The contract between taxpayer and treasury creates an asset of value £312bn. Bonds are held by taxpayers banks and can be used as collateral by taxpayers whose financial affairs are in order. Interest is paid to the treasury by banks

  • rate this

    Comment number 119.

    118. Lol

    Just to say the Co-op bank was as deeply into PPI miss-selling as other banks.

  • rate this

    Comment number 118.

    So what your saying is that the now defaulted corporate loans which were 'inheritted' by the Co-op from the Britannia has created this 'black hole'. These defaults then doubled in 2012, 3 years after the merger with Britannia & during the depths of a recesson. Yet, this is worse than having faced large PPI miss-selling claims, aided money launderers, fixed libor rates & paid imoral bonuses????

  • rate this

    Comment number 117.

    I suspect that the FSA played it very well having regard to the political context.
    They would have had a good inkling that the deal wouldn't stand but they thought it best for that to emerge rather than leaving themselves open to being accused of interfering with due process.
    So what if it takes a little bit more time to get the right decision?

  • rate this

    Comment number 116.


  • rate this

    Comment number 115.

    De equitisation ~ http://mobile.bloomberg.com/news/2013-05-14/fewer-u-s-shares-available-fuels-bull-market-chart-of-the-day.html?cmpid=

    Explaining the stock market adjustments, rally and search for apogee.

  • rate this

    Comment number 114.

    Yet another article from Robert knocking the Co-op bank.

    The Co-op didn't play ball and now the regime broadcaster is spreading a bit of poison. The Co-op Bank is a high street institution, Robert - your words (unfortunately) have influence with the public.

  • rate this

    Comment number 113.

    I am still stunned and appalled by the possibility that the FSA did not report a real risk - because it didnt want to block something that was supported by Parliament. I wonder - would Parliament have supported it if FSA had the guts to do their job and report the very real risks. Hmmm - 'we knew it was going to sink but didnt want to say anything because you all seemed to be having so much fun'

  • rate this

    Comment number 112.

    #92 wish my mortage was on the same terms as the labour partys

  • rate this

    Comment number 111.

    Bank Bailout Blues Stall U.K. Recovery http:// http://online.wsj.com/article/SB10001424127887324031404578480980500180020.html .wsj.com/article/SB10001424127887324031404578480980500180020.html. It was never openly discussed what would happen if a major bank had failed in Uk rather than being propped up.

  • rate this

    Comment number 110.

    109 ~ We, the people, are relying on politicians and professional elite to solve problems that tempt fate because the problems are drawn out and partisan. It might be time to do it for ourselves which is actually the way of the world and life.

    Redemption Bonds to save us. Lend to government, the government lends back to us and fills the banks full of capital. Everyone wins. It's that easy.

  • rate this

    Comment number 109.

    Comment 106 from purple seems to perfectly sum up the current problem in the finance world.
    It appears that the customer is being asked to actually pay in to an investment bond more than they will get out, thereby paying for shareholders/directors etc to continue receiving unjustified returns and salaries!

  • rate this

    Comment number 108.

    107. SAB

    It in unenvialble work and balances are struck. I wonder if the new arrangements will prove effective. I suspect the enduring lesson has been learnt from the ques draining Northern Rock, rather than the cause of that hiccup.

    The real lesson is to let the troubled banks go under, dragging shareholders along fir the ride. Lehmans didn't turn out that badly. The opposite, in fact.

  • rate this

    Comment number 107.

    @ 104

    When the regulators risk exposing themselves to interpretations of historic negligence, and when they are also under pressure not to precipitate further panic/scandal, it’s hard to see just how effective the regulators can be in this context

  • rate this

    Comment number 106.

    Would it surprise taxpayers, that by taking out a bond and paying £20 per week, over ten years, the entire financial mess of bsnking and govt revenue could simply be waved away with a/magic wand and the economy turned around overnight?

    Could you spare £20 a week, that's £10k over 10 years to sort this mess out now?

    If yes, state so in your posts.

    10K x 30 million. Your bond would grow to 10k

  • rate this

    Comment number 105.

    "The U.K. government failed to put in enough capital [and] failed to be aggressive enough" pushing banks to restructure, said Adam Posen, who until last year sat on the Bank of England's Monetary Policy Committee and is now president of the Peterson Institute for International Economics in Washington. "This is a very common failure in Europe."

    Come back Adam, all is forgiven. :)

  • rate this

    Comment number 104.

    100. SAB ~ Where an institutional lender is realised to have been reckless, they are negligent. Regulators will fine lenders shown to have been reckless. Under the system of regulation in place now the matters of compensation for negligence have become a grey area to be tested.

  • rate this

    Comment number 103.

    Sounds like the same people were in charge as in 2007?

    Is it some golden rule of financial regulation that it is always left to the three monkeys: see no evil, hear no evil and speak no evil?

    Why are we paying for all these acronyms?

  • rate this

    Comment number 102.


    the PRA should not look to what MP's think whom do not have the facts the at the PRA r being paid quite a job 2 do a job that protects "banking" for the UK , so that what they should be doing not playing politics


    Translate please.


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