Sir Christopher Kelly’s report on the “sorry tale” of the multiple failings of the Co-op Bank contains no great factual revelations. But the forensically-recorded details of this “sorry tale” are devastating – as bad as feared. Any Co-op member or official doubting the need for a complete overhaul of how the movement is governed should read and digest the central message: the Co-op Bank and the Co-op Group were the authors of this “debacle.”
No senior figure at the Co-op emerges with credit. The Co-op conducted only “cursory” checks on the Britannia Building Society but the board deluded itself that a thorough job had been done. Nobody bothered to consider seriously that the Britannia’s collection of property loans fell outside the Co-op’s traditional appetite for risk. Capital forecasting and planning were “poor.” The bank board and executives were crossing their fingers and engaging in “unwarranted optimism” that an economic recovery would lift the value of the property assets.
Neville Richardson, the Britannia boss who became the Co-op Bank’s chief executive, told the Treasury Select Committee that when he left in 2011 the bank was in good condition. “The evidence that it was not is overwhelming,” says Kelly. Barry Tootell, who succeeded Richardson, “struggled in the role”.
As for Peter Marks, the group chief executive and driving force behind the pursuit of 631 Lloyds branches, “his relative lack of banking expertise, and his commitment to finding a way of making the transaction succeed, made a dangerous combination.” Paul Flowers, chairman of the Bank, “manifestly did not have appropriate experience” and, though the regulator did not object, he was the group board’s appointment.
Add it all up and the picture of amateurism, reinforced by lack of challenge from the boardroom, is extraordinary. Kelly takes a side-swipe at JP Morgan Cazenove, which advised on the Britannia deal, saying “it is not easy to understand” how it came to the view that the due diligence undertaken by KPMG “exceeded that normally undertaken for listed companies,” which is what the board minutes record the investment bank as having said. But Kelly concludes that “a more informed board might have been expected to probe these issues more carefully.” Quite.
In a rational world, Kelly’s report would have been followed by the resignations of all those directors who served in the critical 2009-2013 period (there’s still a few on the group board, including chair Ursula Lidbetter). This being the Co-op, the story instead moves on to 17 May and the vote on governance reform.
The Co-op is just another example of the conundrum about management vs. shareholders: what structure is required for effective oversight? In the past 20 years, I’m struck by the Coop’s sad decline vs John Lewis’s success.