Months after the Co-operative Bank’s financial difficulties were brought to our attention, the actual scale of the damage has been revealed to the public. As well as affecting the Bank, issues are likely to impact the whole Co-operative Group.
As a result, Group chief executive Euan Sutherland has put sweeping changes in motion and is said to be examining the decisions that led to weak governance. The old guard has been replaced by new management. Methodist Minister Paul Flowers, the former chairman who supported the Israel boycott campaign on the Co-op board, has been replaced by Richard Pym, the former bank CEO of Alliance & Leicester. Past mismanagement has put the whole Co-op Group in jeopardy.
An ill-conceived board merger with the Britannia Building Society in 2009 led to an estimated £1.1 billion debt. In addition, the Co-op’s takeover of the Somerfield supermarket chain in the same year also weakened the Group.
The £1.6 billion deal, partly financed by debt, was qualified by restrictions on operations.
Despite owning chains of funeral parlours, supermarkets and pharmacies, Co-op representatives say they are unable to sell more companies to recover and support the Bank. Some 15,000 Co-op bondholders, including Jewish property guru Sir John Ritblat, are being asked to take responsibility for the £1.5 billion hole in the restructuring of the bank — including swapping their bonds for shares.
The most astonishing aspect is that former managers recklessly invested in a madcap expansion programme and even attempted to absorb 632 Lloyds bank branches into the Co-op. As one of the first commercial groups to bow to the Palestinian boycott campaign of West Bank and Gaza goods, the Co-op has shown itself to also be a political organisation.
Under review, the Co-op may well become less likely to fall in with the vehement boycott campaign.
For instance, the Group sponsors MPs, including Shadow Chancellor Ed Balls, an active supporter of UK-Israel trade. Under new management, one hopes that the Co-op Group boycott, of four Israeli fruit suppliers that distribute produce from the West Bank and Gaza, will finally wane.
Alex Brummer is City Editor of the Daily Mail