“Co-op bank’s failings stand out both for the duration and seriousness of the risk management and control deficiencies uncovered,” said Andrew Bailey, chief executive of the Bank of England’s prudential regulation authority (PRA).
You bet. Read the reports by the PRA and Financial Conduct Authority (FCA) and be astonished by the feebleness of the Co-op’s approach to assessing and managing risks. In 2009, the bank was, in effect, contemplating betting its future on a merger with the Britannia building society. Surely the bosses would wish to know what they were buying in minute detail – especially about Britannia’s corporate loans, given that the UK was in post-crisis recession at the time.
Instead, an in-house team spent just two days inspecting only 30 corporate loans, representing a small portion of Britannia’s credit exposure. “This was carried out by a review of files which contained little information, often with no reference to the name of the borrower but to a reference number from which the borrower could not be identified,” said the PRA.
No written report was prepared for the board and “between January 2009 and 1 August 2009, when the merger took place, no further due diligence was carried out in respect of the Britannia corporate loan book”. Extraordinary.
The sorry tale continues all the way to early 2013 when the Co-op reassured bondholders and the market that it had enough capital, a claim the FCA calls “false and misleading”.
The PRA and FCA deem the bank, even today, to be too weak to pay a heavy fine. Fair enough. A censure for the bank will have to suffice because, in truth, it is individual culpability that really matters. That is harder to prove because individuals tend to dispute findings when their reputations are on the line and hefty fines a possibility. But, hurry up, regulators, we want to hear where individual blame lies. It would be a disgrace if the full account of the Co-op’s horror show takes as long to appear as the postmortem on HBOS.
