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'Co-op needs to focus on future'

By Leek Post and Times  |  Posted: May 07, 2014

By Leslie Jackson

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THE merger of the Co-operative Bank with Leek-based Britannia Building Society "should never have happened".

That is the view of Staffordshire Moorlands MP Karen Bradley, following the publication of an independent review into the events which led to a £1.5 billion capital shortfall announced by the bank in June 2013.

It identified the merger of the two organisations in August 2009 as a major source of the Co-op's subsequent difficulties.

Staffordshire Moorlands MP Karen Bradley said Sir Christopher Kelly's report showed what many had suspected.

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She said: "The Kelly Review confirmed what most people have long suspected, that the merger between the Britannia and the Co-op should never have happened.

"As I have said before, I had strong reservations about the deal, but I accepted that it was supported by over three-quarters of the members of the Britannia.

"Now that Sir Christopher Kelly has completed his very valuable work, we need to stop looking at past mistakes and start to focus on the future, making sure that everyone who works for the Co-op – whether that be at the bank, in a pharmacy or at a supermarket – has security and peace of mind.

"The management need to pull together, quickly, and make the changes necessary to secure the group's survival."

Announcing his findings, Sir Christopher said: "At the time, the Co-operative Bank was a small, full-service bank with a high cost/income ratio, which led to modest profits.

"Britannia was the UK's second largest building society. It stood out from its peers in the extent to which it had expanded beyond conventional residential mortgages.

"Other lending, including a £3.7 billion corporate book composed largely of commercial real estate loans, accounted for as much as half of its lending, and a greater proportion of its regulatory capital. The Co-operative Bank wanted Britannia's personal customers and retail branches.

"In acquiring them, it also got saddled with a substantial volume of assets well outside its risk appetite in terms of type, loan-to value or concentration risk."

Leader of Staffordshire Moorlands District Council, Councillor Sybil Ralphs, said of the report: "I don't think this will come as unexpected news to many people, but the important thing now is that the Co-operative Group addresses the issues raised and is able to move forward.

"I hope that this can happen quickly to provide some clarity for all the employees as this must have been an unsettling period for them."

Richard Pennycook, Interim Group Chief Executive of The Co-operative Group, said: "Following the wake-up call of our recently announced £2.5 billion loss, Sir Christopher Kelly's report lays bare the failings of management and governance that caused it.

"The management that instigated this disaster for the group are no longer in place; the flawed governance structure that failed to apply the right checks and balances, however, remains. Our colleagues, our members and our customers now look to the group and regional boards to deliver the reforms which are so clearly necessary."

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