Regulator v Co-op ex-boss: not a 'vendetta'

 
Co-op Bank branch Did Britannia cause the Co-op Bank's woes?

I understand that Andrew Bailey, chief executive of the Prudential Regulation Authority, has written to the Treasury Select Committee, responding to claims by the former boss of Co-op Bank that he wrongly characterised the source of Co-op Bank's woes.

Neville Richardson told MPs on the select committee that Mr Bailey was mistaken when he said that bad lending by Britannia Building Society - which Mr Richardson previously ran and which merged with Co-op Bank in 2009 - was the main reason why Co-op Bank now needs to be rescued (see here).

Strikingly, Mr Bailey has chosen to respond more or less straight away.

I have learned that he has written a letter to the chairman of the Treasury Select Committee, Andrew Tyrie, saying that he has no wish to conduct a "vendetta" against Mr Richardson (an interesting choice of words), but he then sets out numbers on Co-op Bank's losses which he thinks prove his case.

Here are the relevant stats, according to Mr Bailey.

In the 18 months to the middle of 2013, Co-op Bank incurred losses on its loans of £970m (a short billion pounds - ouch), comprising £288m of losses on core loans, and £682m on non-core loans (or loans no longer regarded as central to what Co-op Bank does).

Of these, 75% of the non-core loan losses stemmed from the Britannia book in 2012, and 85-90% of these losses in 2013 were a Britannia vintage.

Which is why Mr Bailey feels confident in saying that more than half the loan losses over the past 18 months came from Britannia.

To be clear, loan losses weren't the only source of Co-op Bank's problems. There were also, for example, the expensive write-offs of an IT system.

But Mr Bailey feels confident in his statement that Britannia was a significant cause of the hole at Co-op Bank.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 65.

    If it isn't a vendetta how come the big banks with standard stock market ownership structures and MUCH WORSE debt/liquidity ratios etc are not being pursued with even remotely the same vigour........?????????

  • rate this
    0

    Comment number 64.

    #60 Agreed, but the loans are non-core/higher risk - apparently performing well (until recently?!). No disputing higher provisions required (by all banks) to off-set potential loan losses.

    My point is more as to how the story is framed - 'regulator v ex-boss' when the 2 sides agree.

    If not Britannia (as reported), who/what is to blame for the further £1bn losses?

    More investigation please RP!

  • rate this
    0

    Comment number 63.

    #62 totally agree with you there , also menat HMG borrowing costs were low and fitted straingth into brown spend spend spend tax tax tax policy

    70,000 estate agents too, agree , in the last year , but shows that a big problem is coming our way, as if we did not know

  • rate this
    +1

    Comment number 62.

    60.IR35_SURVIVOR "ALL part of the DEBT fuelled boom of pre-2008"

    And whose responsibility was that? The idiots at the Bank of England who set rates far too low for the whole of the preceding decade.

    (They justified this on the basis of imported Chinese deflation in the shops keeping inflation artificially low. Their whole economic philosophy of regulation is CORRUPT and ROTTEN and remains so.)

  • rate this
    0

    Comment number 61.

    Apparently

    in the new jobs created this month are/were 70,000 estate agents!

    The fools at the BoE headed by the twit at the top seem totally intent on re-inflating the housing bubble. (Which as everyone knows will presage a disaster.)

    Anything Caney says - the exact opposite happens - he MUST go NOW! Before he completely destroys the UK economy.

  • rate this
    0

    Comment number 60.

    #59 either way around the loans prob should not have been made and were ALL part of the DEBT fuelled boom of pre-2008

  • rate this
    0

    Comment number 59.

    RP misses that the bank 'impairment provisions' and other 'significant items' for the period totaled £1.6bn (very similar number to their shortfall).

    Using above %s Britannia accounts for £550-£600m (35-38%) of the £1.6bn total. This is in-line with what Mr Richardson said to the TSC - Britannia accounted for 1/3 of total losses in the period.

    Story is 'Regulator agrees with Co-Op ex boss'!

  • rate this
    +2

    Comment number 58.

    lord grade stated on newsnight that the BBC has lost the value of money,

    think this statement applies to many others from top to bottom of society.

    It would seem that those respnsible for the Britiannia part of the losses at least should have to repay there bonuses that they obtained when writing this loans

  • Comment number 57.

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

  • rate this
    0

    Comment number 56.

    John_from_Hendon @55
    "how entrenched"
    Danger of 'pedestrian' irony
    Times 3.5 was quite enough, thank you!

    BUT, for those who knew or thought they would 'mint it', and for those who gambled that inflation would make debt negligible, 'markets were created' that ensured prophecy-fulfilment, housing bubbles etc, unfortunately beyond their wildest (without a care) dreams

    No dodging equal partnership

  • rate this
    0

    Comment number 55.

    53.All for "beyond the pedestrian "x3.5"

    You mean insane levels of unaffordable debt!

    3.5% is not pedestrian at all it is actually rather a high multiple in the long term.

    Your comment shows just how entrenched the disastrous insanity has rotted into the national financial psyche!

    Anyone who uses the affordability argument should be (metaphorically?!) shot! They are the destroyers & the evil.

  • rate this
    0

    Comment number 54.

    52.treacle_01 "You mean do it like Goldman's, then."

    Do you not get the vital necessity of getting rid of the 'too big to fail' banks and institutions?

    Until this is done the global system will crash and create bubbles at an ever increasing rate till it vanishes up its own flue pipe.

    This could be as soon as the middle of next year - we are very near the next (sorry current) financial collapse.

  • rate this
    0

    Comment number 53.

    John_from_Hendon @50
    "not free money for all"
    Indeed

    But where there is expectation of 'loads-a-money' (whether from essentially fraudulent 'pay and pension' structures, or from frankly predatory casino-finance operations) a market is created for loans beyond the pedestrian "x3.5"… back to need for stability, sharing natural growth (trend 3%), as equal partners (by the way, renting not owning)

  • rate this
    0

    Comment number 52.

    @51.John_from_Hendon


    It is also why we must get 'full mark to market' where all the assets and liabilities of a bank are valued on the basis of a fire sale at each accounting date. That must from the basis of the accounts.

    --

    You mean do it like Goldman's, then.

  • rate this
    0

    Comment number 51.

    48. treacle_01 " the same effect"

    That is why the big 4 banks are far too big ... to continue to exist! They must be broken up into 40 banks.

    It is also why we must get 'full mark to market' where all the assets and liabilities of a bank are valued on the basis of a fire sale at each accounting date. That must from the basis of the accounts.

  • rate this
    0

    Comment number 50.

    35.All for All

    You know the answer (to -Why not free money for all!).

    Loans given to those who cannot repay them, have absolutely no prospect of repaying them, will inevitably crash the whole system - just as night follows day. in short Moral Hazard.

    Debasing money by overpricing secured assets ALWAYS leads to a catastrophic crash (if all coats and wages aren't running at similar rates.)

  • rate this
    0

    Comment number 49.

    #45 "I strongly suspect that the Brown Government ... encouraged people like Lloyds, the Co-op, etc. to "help out"."

    You don't need to suspect. It a well-documented fact that Brown pushed Lloyds into rescuing HBOS. Much to the dismay of Lloyds' shareholders who, until then, had been owners of a solvent, profitable company.

  • rate this
    0

    Comment number 48.

    @46.johval

    Nobody is going to employ an auditor who reports that your bank/company looks dodgy.
    --

    Auditors have a major problem when auditing banks (apart from incompetence)

    The ultimate threat is to qualify the accounts, but qualifying the accounts of a bank creates the run that they want to avoid.
    Resigning would have the same effect.

  • rate this
    0

    Comment number 47.

    @46 johval
    They are regulated. The banks are regulated. You should ask about regulation quality, not whether they are regulated or should be regulated more.

    We need to regulate our MPs & Government Ministers. Let them know what we think & want, esp. as far as Banks, Royal Mail privatisation, etc., are concerned.

  • rate this
    0

    Comment number 46.

    Nobody is going to employ an auditor who reports that your bank/company looks dodgy. No surprise then that auditors 'Missed' so much. The auditors need as much regulation as the banks and that is a lot of regulation.

 

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