Co-op launches probe into banking woes

The inquiry, which will be chaired by Sir Christopher Kelly, will examine the events leading up to the Co-operative’s recently announced rescue plan, designed at raising capital from bondholders to cover a reported £1.5bn shortfall in its balance sheet.

The review will look at management decisions surrounding the merger with Britannia Building Society in 2009 and how the proposed acquisition of 631 Lloyds TSB branches fell through in April.

Sir Christopher will start his review in September with the aim of presenting his findings to Co-operative members at the group’s annual meeting in May 2014.

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A spokesman for the Co-operative Bank said the capital action plan would “wipe out” the group’s equity stake in the banking arm.

It is understood that the bank will write off £250m in Finacle, a failed computer system. When asked, the Co-operative spokesman added that a £150m provision for Finacle was made in last year’s financial results but “no further decision” has been made on whether a higher amount will be written off upon the publication of the financial results next month.

Euan Sutherland, group chief executive, said it was “important to learn from the past” while pressing ahead with the capital action plan.

Industry comment
Gary Greenwood, banking analyst for national broker Shore Capital, said: “The Co-operative Group is calling the shots here when, arguably, the bondholders have rights to ownership under the terms of the capital action plan. Many bondholders feel that the group should be offering more support to the bank, by either entering the bank into a resolution plan or finding other sources of capital injection, possibly by selling its stake to an interested buyer.”