Prudential Regulation Authority chief executive Andrew Bailey has told MPs he thought former Co-operative Bank chair Reverend Paul Flowers was “pompous” but blamed the bank’s problems on Britannia Building Society.
Speaking to the Treasury select committee today, Bailey attacked Flowers but said the Co-op Bank’s troubles were mainly caused by bad loans originating from Britannia Building Society, which it merged with in 2009.
Flowers quit the bank in June last year after the collapse of the deal to buy 632 Lloyds Banking Group branches. The deal fell apart after a £1.5bn capital black hole emerged.
Flowers, who advised Labour on economic policy, was attacked as “incompetent” by MPs after he did not know the size of the bank’s balance sheet of loanbook when he appeared before them in November. He has since been arrested for allegedly buying drugs including crack cocaine and crystal meth.
Bailey said: “I met Paul Flowers six or seven times and I thought he was pompous, to be honest. I thought he had no financial background.
“But let me give the other side of the coin. I have looked at our records of board members, old and new, and none of them criticised Paul Flowers.
”They generally say he was an effective chairman. I was surprised as you when he came to the committee. My experience with him was that he was well-briefed and didn’t display ignorance.”
Bailey said he still had confidence in FCA head of supervision Clive Adamson, who approved Flowers after a 90 minute interview. Bailey said he would conduct all interviews of very senior bank staff in future and pledged that they would be more rigorous.
However, Bailey did not blame Flowers for the troubles at the Co-op as he pointed the finger squarely at former Britannia Building Society chief executive Neville Richardson.
Bailey said Britannia’s bad loan book undermined the Co-op’s capital position when it was merged in 2009. He accused Richardson and the Britannia management of being in denial about the problems.
He compared Britannia to the Dunfermline Building Society, which required a Government bailout in 2009.
Bailey said: “The Co-op merger took Britannia out of the spotlight but it didn’t solve the problem because it didn’t deal with underlying issues.
“It would have been very difficult to do a full resolution of Britannia at that point. It would have risked undermining all building societies because it was so much bigger. It could have been dealt with had the economy recovered and interest rates had risen alleviating the margins. That did not happen.”