Neville Richardson counters regulator's claims that Co-op's problems stemmed from bad debts on loans by Britannia building society
The former chief executive of the Co-op Bank blamed his bosses and regulators at the Bank of England for the bank's current financial problems and said they had wrecked the mutual society's chances of becoming a major high-street lender.
Neville Richardson told MPs that he resigned in 2011 when the Co-op Group board ignored his repeated warnings that plans to buy more than 600 Lloyds branches were a step too far for a bank wrestling with a poor economic situation and the after-effects of a major merger. He also warned against a cost-cutting drive that undermined the day-to-day running of the bank.
He told the Treasury select committee that the bid was the "right deal at the wrong time" and put Co-op Bank at "unacceptable risk". "The board and chief executive of the Co-op Group at that time did not accept my warnings and were determined to press ahead. That is why I stepped down."
Richardson was defending his record after Andrew Bailey, the head of the Prudential Regulatory Authority, alleged that the Co-op bank's problems related to bad debts on loans granted by Britannia building society prior to its merger with the Co-op. Richardson is a former chief executive of the Britannia and moved to the top job at the Co-op after the merger.
He argued that he left the bank in good shape, with "no issues". He denied that Britannia had brought with it a history of bad debts on its corporate loans, saying the debts were well managed and in line with other major lenders.
After Richardson left, impairment charges soared. In 2012 the Co-op Bank set aside £468m to cover poorly performing loans, up from £115m in 2011. Richardson blamed the bank's parlous situation on a change in the way regulators account for bad debts and mismanagement of the business.
The Bank of England immediately issued a terse statement defending Bailey. It said: "We strongly disagree with Neville Richardson's view regarding the Britannia loan book situation. The evidence that Andrew Bailey gave to the TSC was correct."
Richardson, who left the business with a £2.5m payoff and £2.1m in pension payments, was freed by parliamentary privilege to talk about his tenure after he signed a non-disclosure agreement with the Co-op.
The Co-op now needs to find £1.5bn in extra capital. Some will come from a "bail-in" of small investors holding Co-op bonds and the mutual also faces having to float up to 49% of the business on the stock exchange to raise further funds.
The regulator said he warned the Lloyds board when Co-op bank was named as the preferred bidder that it lacked the necessary capital to support its bid.
MPs are investigating why the deal under which Co-op was to buy the Lloyds branches collapsed this year. The probe reflects widespread concern at the failed attempts to break up the dominance of the major high-street lenders, which the government has been keen to encourage.
Virgin Money, which took over Northern Rock, has made only limited inroads, while the Nationwide building society, which absorbed several smaller societies in the aftermath of the financial crash, has also struggled under the weight of new capital requirements.
The Co-op Bank expanded from 100 branches to more than 300 following the merger with Britannia and was due to hit the 1,000 mark once it absorbed the Lloyds branches.
Andrew Tyrie, the chairman of the Treasury committee, said: "There appears to be a yawning gulf between the evidence the committee heard today from Mr Richardson and the evidence we heard previously from Mr Bailey. The committee will be investigating this a good deal further."
Bailey is now expected to be recalled before the committee along with several senior officials from the Co-op and Lloyds to discover when the bad debts came to light.
Speaking in front of the committee in June, the chief executive of Lloyds, Antonio Horta-Osorio, said Lloyds had been aware of Co-op's capital problems long before the deal collapsed.
Co-op Bank withdrew its offer for the branches in April, blaming the "economic environment" and "increasing regulatory requirements on the financial services sector".
Article Source : http://www.guardian.co.uk
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