Former Co-op boss says he warned bank over-stretched

 

The story of the financial calamity at Co-op Bank, which has necessitated a £1.5bn rescue, became a good deal more complicated today - with the evidence provided to MPs on the Treasury Select Committee by Neville Richardson, the former chief executive of the bank.

The most serious claim he made was that in 2011 the bank's owner, Co-op Group - led by its then chief executive Peter Marks - was bossing him and his fellow bank executives to take on too many so-called "change programmes", namely the sale of an insurance operation, the replacement of IT systems, imposition of a new management structure giving Co-op Group more control (called Project Unity) and the possible purchase of 630 branches from Lloyds (Project Verde).

Mr Richardson felt it was all too much for the bank, that its ability to manage itself prudently would be imperilled, and in mid-July he told Mr Marks so.

Rather than change the strategy of this medium-sized bank, Mr Marks took the view that it would be better if Mr Richardson left the bank - which he did, in Mr Richardson's words, "by mutual agreement".

Mr Richardson did not under-state the significance of this disagreement. He said that the "catastrophic failure" we have subsequently witnessed at Co-op Bank was because his warnings were not heeded.

What is slightly odd is that MPs did not ask Mr Richardson whether he shared these warnings about what was going wrong at Co-op Bank with regulators at the Financial Services Authority - the City watchdog now replaced by the Prudential Regulation Authority.

It would be normal practice for regulators to interrogate a departing bank chief executive on the reasons for his departure. So what on earth did they glean at the time?

This matters because it is now clear that Co-op Bank was in subsequent weeks and months chronically over-stretched.

Mr Richardson made another important claim, which is that Andrew Bailey, chief executive of the Prudential Regulation Authority (PRA), was wrong when he said that at the heart of Co-op Bank's current woes was bad lending by Britannia Building Society - which Mr Richardson previously ran and which merged with Co-op Bank in 2009.

He said Co-op's bad debts and losses are largely down to bad management of the loan book after he left Co-op Bank, other one-off losses unrelated to Britannia, and the imposition of a more conservative approach to assessing the quality of loans imposed on all banks by regulators at the end of 2012 and in 2013.

The PRA reacted immediately. It said: "We strongly disagree with Neville Richardson's view regarding the Britannia loan book situation. The evidence Andrew Bailey gave to the Treasury Select Committee was correct".

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +1

    Comment number 35.

    Another Monday quarter-back whistle blower who could not find his whistle at the time. Was he paid in his voluntary severance to keep quiet ?

  • rate this
    +1

    Comment number 34.

    24.ghostofsichuan

    "No one was punished so the bankers were encouraged to continue business as usual"

    ===

    It's worse than that. They've now solid proof that they're underwritten by Team PAYE.

  • rate this
    0

    Comment number 33.

    I just hope the Coop will not allow themselves to be tainted by too close association with our other banks.

  • rate this
    +4

    Comment number 32.

    absolutely nothing to do with you Neville, then........

    these' blame and retribution ' committees are better than Eastenders for entertainment...the level of acting though inferior.

    forensic accounting.... nil
    a load of old tosh .....ten

  • rate this
    +4

    Comment number 31.

    I have to say this is not new ask anyone who has worked with the co-op. With Peter Marks gone hopefully things will change.

  • rate this
    +1

    Comment number 30.

    26.capitalismhurts


    A/. What are the liabilities for Co-Op vs their assets?

    B/. What are the comparable figures for all the banks that have taken part in the Govt. bail out & other schemes?

    C/. How many banks have not been part of the above?

    D/. Figures freely available from FSA/successor.....if YOU can be BOTHERED to look them up...???

    E/. I never said Co-Op was virtuous....

  • rate this
    +5

    Comment number 29.

    One under-estimates the damage this affair has done - if the Coop is as incompetent as all other banks, then having discovered that the word of ratings agencies and the regulators can't be trusted, we now see that the word of those on the supposed high ground is false, fidite nemini. The loss of trust is absolute.

    When will we see the regulatory staff in front of an enquiry? I'll pay.

  • rate this
    +7

    Comment number 28.

    Bang on again Robert. What the hell were our regulators playing at? They should have ascertained why Richardson was going and been aware of the capital black hole if they had done their prudential supervision properly. Given the parlous state of the Coop they should not have been actively encouraging the purchase of the Lloyds branches.

  • Comment number 27.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +2

    Comment number 26.

    "It's in less troubles" ?????

    Really - you obviously have no idea what troubles the Co-op is in to make a statement like that.
    The days of singling out the coop as a parody of virtue are long gone - they got greedy like all the others ; they were mismanaged like - they tried to go play at big school but forgot they were still wearing little grey short pants and carrying a Spider-Man lunchbox !!!

  • rate this
    +5

    Comment number 25.

    You have to laugh - the only difference is that the Co-Op doesn't have the background of political donations (be that as an organisation or as the sum of it's individual board members/share holders) that the other banks do....


    ....so even though it is in less troubles than the other big boys it gets more stick......



    ....our society has become one of complete rank hypocrisy.....

  • rate this
    +6

    Comment number 24.

    Nothing has changed since 08. The regulators don't regulate, the bankers still lie and the governments turns their heads. No one was punished so the bankers were encouraged to continue business as usual. Oh. Something has changed, they put the world into a long term recession...not them, everybody else.

  • rate this
    +6

    Comment number 23.

    20.ch "As an institution the Co-op Bank is finished."

    And the others aren't?!

    Do not abandon mutualism for the unbridled moral corruption of the rest - at least it has moral and ethical values- even though it followed the banking herd to closely for its own good.

    We must break the banocracy's strangle hold on the country - no bank jobs for politicians on pain of 10 years hard labour!

  • rate this
    +3

    Comment number 22.

    19.Smoking_Gun "FSA(PRA) trying to hide behind a changing façade"

    The Windscale / Sellafield transformation! You got to love the radioactive iodine!

    I agree. Having been in contact with all of the 'new' regulators I find that anything before their time is ignored. Raised an insurance miss-selling problem going back 55 years - resulted - consternation! Still it cost many people thousands.

  • rate this
    +6

    Comment number 21.

    Funny all the main men that wanted to play with the big boys walked away with their bonuses in tact, as usual nobody was to blame.
    What will the Treasury Select Committee do about it, nothing. Like being savaged by a dead sheep.

  • rate this
    +3

    Comment number 20.

    This soap opera has a long way to go. What Richardson has done today has pretty much guaranteed him a number of trips to London - and his ex colleagues look like they might be in the same first class train carriage pretty soon.
    Investors have been deceived - read the annual accounts and take a look at what they said about the IT system, for example.
    As an institution the Co-op Bank is finished.

  • rate this
    +4

    Comment number 19.

    This will blow up in spite of the FSA(PRA) trying to hide behind a changing facade - the political establishment on all sides are desperate for it to disappear - see;

    http://hat4uk.wordpress.com/2013/08/04/co-op-exclusive-land-registration-changes-illegal-bonds-and-seven-toxic-questions-tabled-in-the-house-of-lords/

    What next - a bank run, watch out Robert you'll be blamed again . .

  • rate this
    +5

    Comment number 18.

    I'm not surprised Neville Richardson didn't want the purchase of branches from Lloyds - he must have known that it would expose the serious financial position at the Co-op Bank.

    I think the most serious questions should be directed to Neville Richardson regarding the state of the Britannia's loans, which were what caused the Co-op's problems.

  • rate this
    +1

    Comment number 17.

    @1: " It's a serious issue as financial services are still our only world class industry."


    Can I claim the cost of a coffee-stained carpet on expenses please? Your above comedy routine made me laugh at the wrong moment.

  • rate this
    0

    Comment number 16.

    And by the way - I've just been told by the Matron that its time for lights out now so night night everyone.
    Can't wait till tomorrow - Thursday is baked beans day.

 

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