Co-op Bank's ex-CEO had doubts over branch deal in 2011

Tue Oct 29, 2013 11:43am EDT
 
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By Matt Scuffham

LONDON (Reuters) - The former chief executive of Co-operative Bank CPBB_p.L had reservations about its abortive plan to buy hundreds of branches from Lloyds Banking Group (LLOY.L: Quote) in late 2011, he told lawmakers on Tuesday.

Barry Tootell stepped down in May this year after Moody's downgraded the mutual's debt rating to "junk" status, part of a chain of events which resulted in the bank falling under the control of bondholders including U.S. hedge funds.

Tootell told the Treasury Select Committee that he held concerns at various stages of negotiations over whether Co-op had the financial strength to buy 630 branches from Lloyds, in a deal meant to create a new challenger to Britain's biggest banks.

He said those concerns grew in 2012 when Co-op assessed the "economics of the business that we were acquiring and the cost of integrating that business into our business".

Tootell said those issues culminated in him recommending Co-op pull out of the transaction in April 2013 because it did not have the required capital strength. He added that executives at parent Co-operative Group CWSGR.UL had also harbored doubts.

"There wasn't unanimous approval at all times. There were quite rightly questions about the viability of the deal," Tootell told lawmakers on the committee.

The committee is examining why the deal was pursued prior to Britain's financial regulator identifying a 1.5 billion pound ($2.4 billion) capital shortfall at Co-op Bank earlier this year.

Tootell provoked criticism from committee members for his insistence that Co-op Bank's capital position was strong at the end of 2012.   Continued...

 
A red crossing light is pictured next to a branch of the Co-operative Bank in London October 21, 2013. REUTERS/Luke MacGregor