Former Co-operative Bank and Britannia Building Society chief executive Neville Richardson has given evidence which contradicts that given by Prudential Regulation Authority chief executive Andrew Bailey about the root cause of Co-op Bank’s financial woes.
The Treasury select committee is carrying out an inquiry into the deal to sell 632 Lloyds Banking Group branches to the Co-op, known as “Project Verde”, which collapsed in April. The Co-op announced a £1.5bn rescue plan in June which will see bondholders “bailed in” and offered to exchange their holdings for a share in the bank.
Richardson left the Co-op in July 2011, saying he disagreed with the level of ”change programmes” and that as a result his position was “untenable”.
Appearing before MPs this afternoon, Richardson claimed after the Project Verde deal was announced, five of the eight-strong executive team and around 15 members of senior management left the Co-op for similar reasons.
Richardson left the bank with a payout of £1.39m, on top of pension benefits of £2.1m.
Britannia merged with Co-op in January 2009 to create what it called a “super-mutual.” The committee grilled Richardson on the extent to which Britannia’s loan book is to blame for Co-op’s current problems, and questioned him on whether the root of problem loans at Co-op stems back to mortgage books acquired from failed sub-prime lender GMAC-RFC.
Richardson claimed Britannia accounted for around a third of impaired assets at Co-op, and said Britannia had carried out appropriate due diligence on all loan books bought from GMAC. He argued Britannia and Co-op were both in strong financial shape when he left, and that more stringent capital requirements and tougher rules from the regulator on provisions were to blame for the Co-op’s downfall.
But when PRA chief executive Andrew Bailey appeared before MPs in July, he said Co-op’s impaired assets were largely driven by Britannia loans.
Following the hearing, a Bank of England spokeswoman says: “We strongly disagree with Neville Richardson’s view regarding the Britannia loan book situation. The evidence Andrew Bailey gave to the TSC was correct.”
Separately, Richardson told the committee the Project Verde deal was pushed through by the Co-op Group despite concerns that he and other Co-op Banks executives raised.
He said: “I think it was seen as a once in a lifetime opportunity, and perhaps it was with that deal. I have always taken the view that this does not make it an imperative to carry out a transaction if the timing is wrong.”
Richardson explained that as at July 2011, the Co-op had only merged with Britannia two years previously. At the same time as bidding for the Lloyds branches, the Co-op was in the process of overhauling its IT systems and selling its life and savings business, which was eventually sold to Royal London.
He said: “There is phrase which sums up what I believe to be the case here: trying to carry out one major change programme is a challenge, two major change programmes is asking for trouble, and three is asking for failure.”
Richardson said the Co-op Group was also carrying out an internal cost-saving programme called “Project Unity”, to put major areas of the bank under the control of the wider group.
He said: “This was putting financial services people under the control of those who were not financial services people. It was causing very major disruption at the time we were trying to settle in other programmes, I was very much against that and was of the view that, combined with Project Verde, this would have disastrous consequences for the organisation.”