The Co-operative Bank’s failed acquisition of 632 Lloyds Bank branches, dubbed Project Verde, was “doomed to failure” and its capital shortfall “could have been discovered sooner”, a Treasury Select Committee inquiry has concluded.
The inquiry was launched in June last year to find out why Project Verde failed in April 2013. Its report, released today (23 October), cleared the government of putting pressure on those involved to ensure the deal was successful, but heavily criticised The Co-op Bank’s former chairman Paul Flowers.
Flowers, who stepped down in June last year and was fined £525 for possession of cocaine, methamphetamine and ketamine in May this year, “lacked any of the requisite financial services experience to act as chairman of a bank,” Treasury Select Committee chairman Andrew Tyrie said.
Flowers had told the committee in November last year there had been no political pressure to complete the deal, but then subsequently contradicted this in a press interview.
“Given the flatly contradictory nature of his evidence, the committee does not consider Mr Flowers a reliable witness—on Verde, on the Britannia deal, or on any other matter—and has not taken his evidence into account in any of its conclusions,” the report stated.
Tyrie added: “The structure and composition of Co-op Bank’s board was an accident waiting to happen and badly let down Co-op members and customers. Co-op Bank’s governance structure was not fit for purpose for any bank, let alone one bidding to become a major challenger in the UK market.”
The inquiry also concluded The Co-op Bank would not have progressed with Project Verde if the £1.5bn black hole in its accounts had been discovered sooner.
“It is not uncommon for deals to collapse. But in this case it was caused by the near collapse of Co-op Bank itself,” Tyrie said.
“Each of the backstops—Co-op Bank itself, KPMG as its auditor, and the FSA as its regulator — failed to uncover the bank’s capital shortfall until it was too late. Each had a hand in this sorry tale. But by far the biggest responsibility lies with the Co-op Bank leadership.”
Tyrie added that the biggest question that remained was should The Co-op Bank been allowed to proceed with Project Verde. “The FRC’s investigation and the Treasury-commissioned inquiry into Co-op Bank need to examine this in depth,” he said.
Following the collapse of Project Verde, The Co-operative Group launched a bail in plan for The Co-op Bank, but in October last year sold all but a 30% stake in The Co-op Bank to US hedge funds. In May this year, the society’s stake reduced further, to 20%.