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MPs set to grill PRA over Co-op capital shortfall

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The Treasury select committee is set to grill the Prudential Regulation Authority over the £1.5bn black hole in the Co-op’s balance sheet amid claims the regulator was “asleep on the job”.

MPs are holding an inquiry into the collapse of the Co-op’s bid for 632 Lloyds Banking Group branches in April.

Lloyds is being forced to sell the branches under EU competition rules and chose the Co-op as the buyer but the deal feel through last month after the bank revealed major capital shortfalls.

At a TSC hearing last week, Lloyds chief executive Antonio Horta-Osorio admitted he knew about the black hole in December.

Speaking to Money Marketing, Conservative MP and TSC member Mark Garnier says: “There are questions to be asked about what the regulators were doing as they seemed to be asleep on the job. We will have to get the regulators in because how is it possible they did not pick up on this?

“We have learnt a huge amount about bank regulation and done an awful lot. How on earth with all of this reform going on and with new regulators did they miss something as basic as a £1.5bn black hole in Co-op’s balance sheet?”

Conservative MP and TSC member Brooks Newmark pushed for the TSC inquiry into the Co-op.

He says: “How much did the regulator know and if it knew something then why did it not do anything? If it did not know anything they why wasn’t it doing due diligence at the time? Those are the kind of questions I want to see answered.”

Banking consultant Merhdad Yousefi says: “Regulators never mentioned concerns over capital in the deal so it saved the regulator’s bacon when it did not go ahead.”

The PRA declined to comment.

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. The legacy of the disaster that was the FSA lives on. You really could not make this up. No doubt there will be more and more come out of the woodwork in the upcoming hearing. I for one cannot wait to see the results. The problem is that the end result will be “there were things that with be benefit of hindsight we would do differently, and we have put measures in place to ensure this sort of thing cannot happen again”. That should satisfy the TSC abut even if it does not, nothing will actually happen about this. The regulator needs to be as responsible for its mistakes as those whom it regulates – heads should roll but like all quangos it will be a whitewash (or grey wash more like). Pathetic, truly pathetic

  2. Here we go again-RBS all over.
    These people at the top seem impervious to any degree of scrutiny.
    Who will challenge them?
    Its about time we had a watchdog with teeth and not just overpaid over qualified idiots.

  3. This whole situation is Bonkers. The resolution? Make it a criminal offense with hefty prison sentances for Banking institutions AND regulators that make cock ups on this scale.

  4. We’ve all come across them in our working lives; those people who LOOK as though they are busy, but in fact are incompetent and unproductive.

    Remind you of anyone?
    The regulator – both PRA and FCA are constantly announcing this and that, attempting to look busy, but in actuality are flailing around like Frank Spencer. Like the CQC, they are constantly out of their depth and have no grip of the job.
    Pathetic, if it wasn’t so serious in its consequences for all of us.

    I heard on the grapevine that standard issue equipment for new joiners at Canary towers is the following:
    Desk and Chair – for occasional use
    Computer – for occasional use
    Mattress by desk- for normal use

  5. Miss-selling!
    Miss -advice!
    Miss-appropriation!
    Miss management!
    Come on all you ambulance and whip lash chasers,get your act together and sue these ‘b……s’

  6. And now bond holders many of which are pensioners who invested in the CoOp due to it’s ethical credentials are being asked to pay by having their savings destroyed.

    If you are a holder of CoOp debt there is an action group setup which you can join here http://www.fixedincomeinvestments.org.uk/fixed-interest-blog/troubleattheco-op

  7. Thank goodness Mark Garnier is planning to tackle the PRA over this. Despite the Co-op Group presiding over the collapse of its banking arm, it is seeking to push the losses on bondholders while protecting the value of its significant equity stake. The Co-op Group is effectively seeking to overturn the capital structure and cause bondholders, who should only suffer losses once the equity holders of a bank have suffered maximum losses, to bear a substantial part of the burden for its corporate governance failings. What makes this a dangerous precedent is the way in which the PRA has apparently blessed the proposal, thereby being complicit in advancing the interests of the Co-op Group at the cost of thousands of retail investors, many of them pensioners who can ill afford to lose a substantial part of their savings.

    The 9% capital ratio requirement which the PRA has now imposed on the Co-op seems arbitrarily and unnecessarily high (beyond Basle 3 and other banks) and the timescale they have been given to raise it seems too short given that the requirement is based on severe stress provisions for losses which most likely will not crystallise in the foreseeable future. Bondholders are being expected to pay irrevocably for them now, while the Co-op Group keeps the lion’s share of the Bank and will benefit most from future writebacks.
    Retail investors in Co-Op bonds who face losing most of the value of their investment should join the bondholders’ campaign led by Mark Taber of Fixed Income Investments.

  8. It seems fairly simple to me.
    The Co op should get what it deserves-lose all its investors and the many bank customers it has.
    I support the move to this end and actively encourage investors to stand up to this high handed action(the support of the PRA is unacceptable and they should stand accountable for this.
    Who next?
    Who is already preparing for this type of action?
    Lets not let the Coop get away with this,nor the PRA.

  9. Trouble is there will bean awful lot of hand-wringing , tut-tutting , expressions of disgust ,dismay etc and then it will be left with little or no action.
    It is only through the actions of mark Taber and anyone helping him that anything will be done and even then only because they have the guts to challenge on a legal basis. They should not have to do this it should be done by the powers that be , some hope …

  10. I wonder how long the Coop has been in trouble. They are a big supporter of the Labour party.
    One bunch of incompetents supporting another.

  11. I’m glad to see that Mark Garnier on the Treasury Select Committee is planning to tackle the PRA over their role. The Co-op Group is effectively seeking to overturn the capital structure and cause bondholders, who should only suffer losses once the equity holders of a bank have suffered maximum losses, to bear a substantial part of the burden for its corporate governance failings. What makes this a dangerous precedent is the way in which the PRA has apparently blessed the proposal, thereby being complicit in advancing the interests of the Co-op Group at the cost of thousands of retail investors.The 9% capital ratio requirement which the PRA has now imposed on the Co-op seems arbitrarily and unnecessarily high (beyond Basle 3 and other banks) and the timescale they have been given to raise it seems too short given that the requirement is based on severe stress provisions for losses which most likely will not crystallise in the foreseeable future. Bondholders are being expected to pay irrevocably for them now, while the Co-op Group keeps the lion’s share of the Bank and will benefit most from future writebacks. The PRA risks making a massive error of judgement on its first big test.

  12. This is where the TSC really need teeth and bring back those in charge of the then FSA and haul them over the coals. It is these people who are the real culprits in this fiasco. They should be made to answer for their decisions to allow this to happen. It reminds me of George Maudi’s statement when he difined recklessnes as “doing something really stupid, knowing it ws really stupid”. They should be deemed to be not fit and proper to hold any senior office in this business again – In any capacity. Alas nothing will happen, no heads will roll and that is sadly a fact of life in this game we keep playing.

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