What went wrong at the Co-op Bank?

Co-Op bank

As a sobering assessment of missed warnings, leaders that could not see the wood for the trees and a failure of governance at a bank that very nearly went bust, Sir Christopher Kelly's report on the debacle at the Co-op Bank will take some beating.

As the BBC revealed last week, the Kelly report says the root cause was the attempt to take over the Britannia Building Society. Sir Christopher says the merger "should probably never have happened", a view that could equally legitimately be taken about Lloyds Bank's takeover of Halifax Bank of Scotland. Or the Royal Bank of Scotland's calamitous attempt to buy ABN Amro.

The Co-op saw Britannia as an easy route to retail customers and a ready-made branch network. It received into the bargain a mass of commercial property assets "outside its risk appetite", according to Sir Christopher. Britannia had loan-to-value ratios - a key test of the stability of a bank - that should have made the board wince. Due diligence was "cursory" and what is known as the "fair value adjustment" - reporting the true value of assets and liabilities at the time of the deal - proved "woefully inadequate". It estimated a £284m adjustment downwards. The actual figure was later revealed to be £802m.

Sir Christopher says "the Regulator did not object" to the deal. Why the Financial Services Authority kept quiet is a reasonable question, given that it had put Britannia on its own private "watch list" as an organisation in trouble.

The report says that on capital "forecasting and planning" were poor at the Co-op, the bank's board was "ill-informed" and managing day-to-day budgets appeared more important than ensuring a healthy balance sheet. Key executives had little or no banking experience, Sir Christopher says. The person put in charge of the bank's strategy post-merger was an expert in human resources.

On top of the bank's struggles to integrate the Britannia, the Co-op Group Board applied two further stresses - Project Unity, to bring together functions at the Co-op Group and the bank; and an attempt to buy 632 branches owned by Lloyds Bank. It was like attempting to fit after-burners on a Trabant.

Sir Christopher touches on the culture of the Co-op, a section of the report which should be required reading for any budding management gurus out there. His report says there was a willingness to accept poor performance, a tendency to promote good news over bad and a dislike of challenge. Niall Booker, the present chief executive of the Co-op Bank, insists that that culture is changing.

After its near collapse and restructuring, the Co-op Bank was bought by a number of American hedge funds and Co-op Group's stake fell to 30pc. Attention will now turn to the lessons in Sir Christopher's report for the Group, which has its key annual general meeting on May 17.

What it says of governance will be the key. Will members be convinced by Sir Christopher's finding that "the methods used over the last few years to appoint members of the board have led to serious failures". Will they vote through governance reforms? Many argue that the future of the Group hangs on reform and that the banks which are supporting the Co-op Group despite quite eye-watering losses will demand action. Sir Christopher's report is likely to strengthen the resolve of those who argue that without reform, Co-op Group will not have the tools to fix itself.

Kamal Ahmed Article written by Kamal Ahmed Kamal Ahmed Business editor

Lloyds’ results will focus on the dividend and pay

The chief executive’s remuneration has been sparked by the success of the bank.

Read full article

More on This Story

More from Kamal


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 66.

    59.FreemanFlyPerspective - I wish people would stop with this idiocy of "They are not capitalists, but corporate socialists" and referring to how the rich run the world as socialism for the rich. The system is Corporate Capitalism which has been busy deregulating for the past 20 years. This is the complete opposite of socialism. Stop it with your Libertarian crap. We had free capitalism it failed

  • Comment number 65.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 64.

    I have been watching with interest the detailed coverage of the many troubles at the embattled Co-op. However, I believe you have failed to report something fairly significant. The recent resignation from the board of Stuart Ramsey for leaking sensitive information to scare-mongering journalists. I don't think the true impact of these leaks on colleagues was ever considered before going to press!

  • rate this

    Comment number 63.

    Aha another bought of Co-op bank bashing by the BBC. I'm not going to deny it was also run by overpaid, egotistic incompetents, but then hey, so is/was every other bank. The Co-op's biggest mistake was not to plead near bankruptcy back in 2008 and get a massive bailout at the expense of normal people everywhere.

  • rate this

    Comment number 62.

    RE: 61 - Google Global Research/bank bail-ins for how bankers are finalising plans to plunder bank accounts after the next crisis they cause: "According to the Institute of International Finance: “Hitting depositors with Cyprus-style bail-ins” could become the standard response to crises (endorsed by ECB & IMF), serving the interests of the global financial conglomerates.” (Economic Times, 2013).


Comments 5 of 66


Features & Analysis

From BBC Capital


  • A bicycle with a Copenhagen WheelClick Watch

    The wheel giving push bikes an extra boost by turning them into smart electric hybrids

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.