The Treasury select committee has cleared the Treasury of exerting any inappropriate pressure in the Co-op Bank deal to buy Lloyds Banking Group branches but has criticised the failures of the FSA, KPMG and the Co-op board.
In a report into the Project Verde deal, published last week, the TSC said there was “scarcely any evidence” of political interference despite serious accusations.
The sale of 632 Lloyds Banking Group branches to the Co-op Bank collapsed in April 2013 after the mutual uncovered a £1.5bn capital black hole.
Former NBNK chief executive Lord Levene, who was a rival bidder, said former Bank of England governor Lord Mervyn King was concerned about political interference.
At the Conservative party conference in Birmingham last month, FCA director of authorisations Victoria Raffe said it came under “massive” political pressure to rubber stamp the deal but could produce no specific inappropriate examples.
TSC chair Andrew Tyrie says: “It is not uncommon for deals to collapse. But in this case it was caused by the near collapse of Co-op Bank itself. Each of the backstops – Co-op Bank, KPMG as its auditor, and the FSA as its regulator – failed to uncover the bank’s capital shortfall until it was too late.
“Each had a hand in this sorry tale. But by far the biggest responsibility lies with the Co-op Bank leadership.”
Tyrie dismissed Lord Levene’s accusation that politicians were specifically involved in the deal as unsubstantiated.
He says: “It seems improbable that any such political interference could have been concealed by so many people and for so long.”
The Treasury has ordered an independent investigation into the catalogue of failings at the Co-op Bank. It is also subject to an FCA enforcement investigation.
The TSC is also calling for FSA shortcomings to be investigated under the independent investigation.
Jacksons Wealth Management managing director Pete Matthew says: “Talk about a fall from grace. The Co-op Bank held itself up as an ethical bank and has been found to be anything but.
“It is yet another example of an absolute betrayal of trust and there is a lot of bitterness about the Co-op.”
John Charcol senior technical manager Ray Boulger comments: “There was a desire by some politicians to expand the charitable bank sector and promote mutuals.
“It’s hard not to conclude there was some interference in pushing it towards the Co-op. It would have been more sensible for Lloyds to be given as much freedom as possible about who to sell them to.”
Key findings in TSC report into Co-op/Lloyds deal
- Co-op Bank’s bid for Lloyds’ branches was “doomed to failure” from the start and was beset by problems.
- Primary responsibility for the Co-op Bank “calamity” lies with the board.
- The FSA and KPMG also come under fire for not spotting any financial problems earlier.
- The FSA’s shortcomings should be investigated as part of an independent inquiry into the Co-op failings.
- The Treasury is cleared of putting any pressure on Lloyds to sell branches to the Co-op Bank despite serious accusations it did.
- The TSC says failings of senior staff show approved persons regime is “discredited” and must change for all firms.