Co-op Group investigates Flowers' expenses claims

Co-operative Bank branch in Crewe

This note is an unloading of some disparate things I've learned about Co-op Bank and Paul Flowers today.

Think of it as the blog equivalent of what we as children (if you are a certain age) called a jamboree bag: Hope you don't get the sweets that taste of soap.

First of all, I have learned that Co-op Group elders became concerned at the lavishness of Mr Flowers' expenses claims in the months before he resigned as chairman of Co-op Bank and vice chairman of Co-op Group.

There were very big bills for entertaining and "that sort of thing", I am told.

Co-op Group is formally investigating all this, as we speak.

Huge bills

The urgency of this probe has obviously been heightened by the revelation that Mr Flowers allegedly made unreasonable expenses claims totalling around £70,000 when chair of Lifeline, the charity that helps substance abusers.

I am told that at Lifeline he put in huge hotel and meal bills, and claims on his credit card that were "hard to identify".

It is, some would say, odd that Lifeline gave a report on all this to the Charities Commission in 2004, and yet Mr Flowers continued to be a director of a charity (Terence Higgins Trust) until last weekend.

The Charities Commission has this afternoon said it was given no evidence of fraud.

Second, I understand that Co-op Bank is conducting a detailed forensic investigation of those responsible for bringing the bank to its knees because - to quote a source - "we want to get the bastards who did this to us".

It will pass its findings to the Financial Conduct Authority.

Promotion

In this context, it regards the behaviour of executives as more material than that of Mr Flowers.

Mr Flowers was there to stop incompetence and bad practice by the executives.

His were therefore in that sense sins of omission rather than commission.

Third, Co-op Bank is furious at what it sees as the "hanging out to dry" by regulators of its non-executive director Graeme Hardie.

It has been reported, including by me, as a result of a briefing by regulators, that Mr Hardie was involved in approving the promotion of Mr Flowers from non-executive director of Co-op Bank - which Mr Flowers became in 2009 - to chairman in 2010.

Sources tell me in fact that, as a long-in-the-tooth banker who was used by the Financial Services Authority (FSA) as an adviser, his role in Mr Flowers' appointment as chairman was a bit different.

'Help'

In 2010, Mr Hardie was asked by the FSA to tell Mr Flowers that, as a chairman who by his own admission knew nothing about banking, he needed to be surrounded by two deputy chairmen with financial expertise and that he needed "a personal development plan" and "professional help".

This message was delivered to Mr Flowers, who was accompanied in this meeting by the FSA's head of banking, Clive Adamson, who is now at the Financial Conduct Authority.

Mr Hardie was never asked by the FSA whether Mr Flowers was the right person for the job. Or so he has told colleagues.

And what is also salient, according to sources at Co-op Bank, is that Mr Hardie was approached for the position he took on the Co-op Bank board early this year by headhunters, not by Mr Flowers himself.

That said, the appointment was made by the nominations committee chaired by Mr Flowers.

What upsets Mr Hardie, however, is that the regulators told him that they wanted him to do the Co-op job in preference to his other board position, at Metro Bank (which he gave up), because they said that "Co-op needs more help".

For what it's worth, the respected chairman of Co-op Bank, Richard Pym, regards Mr Hardie as the best non-exec he has.

I pass that on (though many of you may well regard this interlude as the soap sweet, and may have stopped reading).

UPDATE: 16:50

Co-op Group has today written to Paul Flowers asking him to return £31,000 he received over the past six months in remuneration as continuing vice chairman of the group.

When he resigned as chairman of the bank in June, his salary from the bank ceased.

But he remained vice chairman of Co-op Group, because he was elected to that role and could not be dismissed.

At the weekend, however, Co-op Group terminated Mr Flowers' £60,000 a year salary, and it now wants back the money recently paid to him.

"We want it back, because he has brought Co-op into disrepute," said a source.

As for the investigation into Mr Flowers launched by Co-op Group, it includes trawling through, not only his expenses claims, but also his computer and emails.

"It is a general and detailed examination of his conduct here," said the source.

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

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