A scathing report into the near-collapse of the Co-operative Bank has pinned the blame on toxic loans inherited from its disastrous merger with the Britannia and laid bare a “sorry story” of multiple management failures.
The review by former Treasury mandarin Sir Christopher Kelly concluded that the takeover by the Co-op of the UK’s second biggest building society “should probably never have happened”.
Sir Christopher was damning about the roles of former bank chief executive Neville Richardson, ex-chairman Paul Flowers, and Peter Marks, who was at the time chief executive of the wider Co-op Group.
The report painted a picture of the bank’s culture in which an “acceptance of mediocrity” took hold and little was done “to discourage the wrong behaviours”. Mr Richardson was said to “dislike challenge” – though he denied this.
It also pointed to the inaction of regulators over Flowers – whose appointment despite his lack of experience meant the bank lacked proper oversight at a time of crisis – as well as in relation to the Britannia’s pre-merger financial affairs.
Sir Christopher was asked to investigate after the bank was found to have a £1.5bn hole in its balance sheet which meant that it had to be rescued by bondholders in a move that saw the Co-op Group lose overall control of the business.
He said: “This report tells a sorry story of failings in management and governance on many levels. The roots of the shortfall lie in a merger between the bank and the Britannia building society which should probably never have happened. Both organisations had problems. Bringing them together exacerbated those problems. It might have worked if the merged organisation had first-class leadership. Sadly it did not.”
The report, which cost £4.4m to produce, threw the spotlight on Richardson, the Britannia chief executive who took charge of the Co-op Bank following the merger in 2009 before leaving in 2011.
Sir Christopher said there was “overwhelming” evidence that it had not been in a good position when he departed, with the bank’s capital position only looking reasonable because “problems had been pushed into the future”.