Ex-Co-op boss fights back, dragging Bank of England into Britannia row

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".

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Bank of England denies its rules forced Nationwide into business lending delay

Threadneedle Street rebuts suggestion that Nationwide's decision was due to capital strength demands

The Bank of England has denied that its insistence on Nationwide holding a bigger capital cushion had forced the UK's largest building society to slow its launch of small business lending.

Nationwide admitted plans to expand lending to small- and medium-sized enterprises (SMEs) are unlikely to take effect until 2014 at the earliest.

It said plans to begin lending to smaller firms were still under development but "moving slowly"; , it denied a report that it had shelved a planned launch date for later this year.

A spokesman for Nationwide said: "We are building our expertise in this area and hiring people experienced in working with SMEs. These things are happening, albeit they are moving slowly."

The Bank of England rejected any suggestion that Nationwide's decision to hold off from a launch into the SME sector was due to its demands on capital strength.

A spokesman added: "The plan agreed with Nationwide to meet the 3% leverage ratio in 2015 will not result in them restricting lending to the real economy. Therefore it is wrong to blame their SME decision on the regulator."

The lender's slowness to offer loans to SMEs will disappoint ministers concerned that small firms continue to be starved of credit.

Nationwide's entry into the market has been seen by business secretary Vince Cable as a way to increase competition and break the dominance of Lloyds and Royal Bank of Scotland.

However, regulators warned the lender had rapidly expanded its mortgage business while still wrestling with an overhang of bad commercial property loans.

Nationwide says its plans to expand lending to small businesse are unlikely to take effect until 2014 at the earliest.
It was rebuked in July by the regulator, the Prudential Regulatory Authority (PRA), for running an aggressive lending policy without adequate reserves to insure against a possible collapse.

Analysts at credit ratings firm Standard & Poor's followed with a warning that a doubling in the losses on commercial property loans to £450m weakened the lender's financial position.

S&P downgraded Nationwide's credit rating this month and signalled that further downgrades could follow without a rapid improvement.

"These impairment charges have hindered Nationwide's internal capital generation. As a result, we have revised down our assessment of its risk position to 'adequate' from 'strong'," it said.

The lender revealed plans to enter the SME loans market last year, where lending has shrunk as banks retreat and demand wanes.

At the time boss Graham Beale described it as a "natural extension of what we can do".

A Nationwide spokesman said: "We have previously said that it is our strategic intention to enter the SME banking market and that we will do this at the right time for the society and our members. That remains our intention."

He said the lender was unable to give an official launch date.

"We have never talked about it being this year, just sometime in the future. We have never committed to a date."

The spokesman was reacting to a report in the Financial Times that a planned launch later for this year had been scrapped.

The newspaper said it understood that a service offering loans to SMEs was unlikely to be ready before 2016.

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Labour party pushes for taxpayer safety net in bank selloffs

Labour seeks a value-for-money test for disposals of holdings in Lloyds Bank and RBS, which has seen share price fall

Labour is demanding the government spells out how it intends to ensure taxpayers get the best deal from any sale of stakes in Britain's bailed-out banks, amid expectations that the first chunk of Lloyds Banking Group shares could be sold shortlyl.

The party has tabled amendments to the banking reform bill, which is due to be debated in parliament on Monday. If passed, they would force the Treasury to say how the best interests of the taxpayer would be protected before any sale went ahead.

Sovereign wealth funds such as the Singaporean government's Tamasek fund are said to be interested in tabling an offer for a stake in 39%-taxpayer-owned Lloyds and a consortium led by former trade minister and one-time Standard Chartered boss Lord Davies is also said to be trying to mount an offer. The first opportunity for a sale is next month when Lloyds publishes its half year results on 1 August – but it will depend on the share price.

Ed Balls said: "The value of the taxpayer’s stake in Royal Bank of Scotland has dropped by more than £4bn in recent weeksGeorge Osborne admitted last month that work was under way on selling off Lloyds, with a stake to City investors the most likely option. But the chancellor admitted that 81%-taxpayer-owned Royal Bank of Scotland could take longer to sell as he commissioned a report into breaking it up into a good and bad bank.

UK Financial Investments, which looks after the stakes in the bailed-out banks, is making preparations for a sale of both banks by asking investment banks to submit tenders to advise on the selloffs. Those pitches must be received on Monday, and all of the City's top banks are expected to make submissions.

Labour intends to challenge the government to ensure taxpayers' interests are protected. While the amendments are unlikely to be implemented before any selloff, particularly of Lloyds, Labour will hope to put pressure on the government to explain the rationale for any sale.

Ed Balls, the shadow chancellor, said a report needed to be conducted before any selloff because of the situation at RBS where the share price has fallen sharply since its chief executive, Stephen Hester, was ousted in mid-June to pave the way for privatisation.

Labour wants the report to calculate the value-for-money of any selloff, after taxpayers pumped tens of billions of pounds into both banks, along with the impact on competition and the wider economy.

Balls said: "This [report] is needed more than ever following George Osborne's disastrous handling of RBS in recent weeks. The value of the taxpayer's stake in RBS has now fallen by over £4bn since Stephen Hester was ousted with no replacement lined up."

"And while the chancellor has been forced to back down from his foolhardy idea of a pre-election loss-making firesale of RBS, we know with George Osborne that the political games always come before the economics and the taxpayer's interest," Balls added.

Labour also intends to table amendments to the bill to adopt recommendations by the parliamentary commission on banking standards, chaired by the Conservative MP Andrew Tyrie. These include deferring bonuses up to 10 years and criminal penalties for reckless misconduct.

Labour also wants a "backstop power" for full separation of all the banks if the ring fence between high street banks and investment banks, recommended by Sir John Vickers, proves ineffective. Speculation about a sale of Lloyds began in March when the boss, António Horta Osório, was linked to selling off part of the taxpayer's stake at prices above 61p

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Bank of England condemns lobbying by banks against new rules

Deputy governor of the Bank of England, Paul Tucker has called for new measures to be introduced before the end of the year

City regulators have brushed aside complaints by Barclays and Nationwide over tough new liquidity rules, saying UK banks would need to put them into effect as soon as possible, years ahead of an international deadline of 2018.

The deputy governor of the Bank of England, Paul Tucker, responsible for financial stability, said lobbying against the change by the banks was "completely unacceptable", and regulators would not be deflected "one iota" from the task.

He told MPs the rules should be introduced before the end of the year to curb the risk exposure of Britain's highly leveraged banks.

Barclays and Nationwide complained vociferously against the "shock" decision by regulators last month to fast-track the new rules, which they said would harm their finances and ability to lend.

At a meeting last week Mervyn King, the former Bank of England governor, told MPs that large banks' executives had lobbied the Treasury and No 10 to block the rule changes before 2015.

Barclays hinted that it could restrict lending to households and businesses if the rules were to bite this year.

The row comes as US regulators on Tuesday made clear they intended to push ahead with the new rules on bank borrowing levels and higher reserves ahead of deadlines established by the Bank for International Settlements.

Much to the annoyance of the head of JP Morgan, Jamie Dimon, and of highly leveraged banks such as Wells Fargo, Dan Tarullo, the Federal Reserve governor in charge of regulation, promised a stricter lending ratio, tying the amount banks can lend to the equity held by shareholders.

He said the reserve was close to putting forward a plan that would place a tougher cap on leverage for US banks.

"The Basel III leverage ratio seems to have been set too low to be an effective counterpart to the combination of risk-weighted capital measures that have been agreed internationally," he said.

Banks have complained vociferously that regulators are demanding they move more quickly to safer levels of capital and lending.

The Tory MP Andrew Tyrie, who heads the Treasury select committee, said he was concerned that the banks were throwing their weight around.

Andrew Bailey, who heads the Prudential Regulation Authority, which will monitor banks and insurers, confirmed that George Osborne was approached by several banks over the new rules, but that the PRA's independence was confirmed by the chancellor.

"We are certainly aware that there are conversations that happened between the banks and officials and ministers," he said. "The thing that concerns me is that we are trying to build, frankly, a transparent process that has accountability in it."

Martin Taylor, a former Barclays chief and an external member of the financial policy committee, which will guard the financial system from a repeat of the 2008 crash, said: "The reason the banks are squawking is that the PRA and Andrew Bailey are doing their job, and you might say about time too."

Bailey said that banks were behind schedule in cleaning up their balance sheets after suffering extra costs from the payment protection insurance scandal and the euro crisis last year.

Paul Tucker told MPs new regulations should be implemented sooner to curb the risk exposure of Britain's highly leveraged banksHe said he wanted the rule in place as soon as possible and that regulatory staff were looking at banks' plans for how they could implement it.

"We have made clear that we will go through these with the public, with the institutions during the course of this month. And we will publish. We will make clear what the outcome of that is," Bailey told MPs.

The PRA said on 20 June that it would set a leverage ratio of 3% for UK banks, which would limit the amount they could lend relative to their capital.

Barclays has a leverage ratio of 2.5% after adjustments, while the Nationwide could only manage a 2% ratio.

Tyrie said: "FPC members today made clear that they feel a 3% leverage ratio is an appropriate minimum backstop and that the FPC can make recommendations in this area, even without an explicit power of direction. Bank lobbying of government only serves to reinforce the need for the power to set the leverage ratio to lie with the independent FPC, not the Treasury."

Lloyds is expected to split 600 branches into a separate business next year to increase competition in the banking sector following an attempt to sell the new business to the Co-op, which fell through.

The MP Jesse Norman asked Bailey why the Co-op's reported "lack of reserves" came as a surprise in December 2012 to Lloyds, when regulators were supposed to be aware of shortfalls.

Bailey said regulators discovered in 2011 that the Co-op was suffering from poor leadership and governance, coupled with a shortage of capital and liquidity. He said the Co-op was made aware of its concerns and he understood that Lloyds was informed.

The collapse of the deal proved an embarrassment to the Treasury, which had trumpeted it as part of wider reforms of the banking sector to make it more competitive.

Tyrie said there was a discrepancy between the testimony of Lloyds chiefs and the regulator.

"The chairman of Lloyds, Sir Win Bischoff, told the Treasury committee that Lloyds became aware of a potential capital shortfall at the Co-operative Group in December 2012. Andrew Bailey today said that he told the Co-op's board that it should inform Lloyds of the regulator's concerns, including over its capital levels, more than a year beforehand.

"[Bailey] also told us he has evidence to suggest his requests were complied with. The Treasury committee will want to look at whether the regulator's message got through, how it was conveyed and what, if any, action was taken."

Article Source : http://www.guardian.co.uk

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'Big four' banks cut 189,000 jobs worldwide in five years

By the end of this year, Britain's four biggest banks will have axed 189,000 jobs around the world in the five years since the financial crisis broke, according to new calculations.

The figures, compiled by Bloomberg, show that Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC will have cut their global headcount by 24% to a nine-year low of 606,000, compared with their pre-crisis peak of 795,000 in 2008.

Royal Bank of Scotland Holdings has axed 78,000 jobs since its £45bn taxpayer bailout in 2008. This includes 4,000 roles in its UK high-street banking business. Sir Philip Hampton, chairman of the bank, which is now 81% owned by the taxpayer, told shareholders this month that further job cuts could not be ruled out.

An RBS spokeswoman said the 78,000 job losses included 39,000 staff who had worked for Fortis and Santander when the three banks joined forces to launch a takeover of Dutch rival ABN Amro in 2007. This is now seen as one of the most disastrous acquisitions in business history, squeezing RBS's capital buffers to tiny margins and exposing the Edinburgh-based bank to rotten US sub-prime loans.

UK banks have reduced their global headcount by 24% since 2008

HSBC, Europe's largest bank, is down to 254,000 staff, compared with 313,000 in 2008. The bank infuriated unions last month when it described 3,166 job losses as "demising" roles. HSBC chief executive Stuart Gulliver plans to slim the bank further, cutting staff to 240,000 by the end of 2016 to trim costs and boost shareholder dividends.

An HSBC spokeswoman said the bank had made a net reduction of 1,100 jobs in the UK, once new positions were taken into account.

Lloyds, which received a £20.5bn bailout in 2008, will have cut 31,000 jobs by the end of this year, including 2,340 in 2013. The bank, now 39% owned by the British taxpayer, announced 850 job losses this month to cut costs, but was unable to give figures on how many of the 31,000 job losses were in the UK.

Barclays chief executive Antony Jenkins, appointed to clean up the bank after the Libor-rate rigging scandal, has said it may axe 40,000 roles in the coming years. Barclays will have cut 20,800 jobs by the end of this year since the start of the crisis. This includes about 5,500 jobs lost in the UK between 2008 and 2012.

The figures come after three of the four banks reported sharply improved profits. Last month, Lloyds posted first quarter profits of £2bn, up from £288m at the same time a year ago. HSBC this month said it made a quarterly pre-tax profit of $8.4bn, almost double the $4.3bn it reported at the same time last year. RBS swung to a £826m profit after a £1.4bn loss last time. Barclays last month reported adjusted first quarter profits had fallen 25% to £1.8bn, partly due to the cost of the bank's restructuring programme.

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