Former Co-op boss says he warned bank over-stretched

The story of the financial calamity at Co-op Bank, which has necessitated a £1.5bn rescue, became a good deal more complicated today - with the evidence provided to MPs on the Treasury Select Committee by Neville Richardson, the former chief executive of the bank.

The most serious claim he made was that in 2011 the bank's owner, Co-op Group - led by its then chief executive Peter Marks - was bossing him and his fellow bank executives to take on too many so-called "change programmes", namely the sale of an insurance operation, the replacement of IT systems, imposition of a new management structure giving Co-op Group more control (called Project Unity) and the possible purchase of 630 branches from Lloyds (Project Verde).

Mr Richardson felt it was all too much for the bank, that its ability to manage itself prudently would be imperilled, and in mid-July he told Mr Marks so.

Rather than change the strategy of this medium-sized bank, Mr Marks took the view that it would be better if Mr Richardson left the bank - which he did, in Mr Richardson's words, "by mutual agreement".

Mr Richardson did not under-state the significance of this disagreement. He said that the "catastrophic failure" we have subsequently witnessed at Co-op Bank was because his warnings were not heeded.

What is slightly odd is that MPs did not ask Mr Richardson whether he shared these warnings about what was going wrong at Co-op Bank with regulators at the Financial Services Authority - the City watchdog now replaced by the Prudential Regulation Authority.

It would be normal practice for regulators to interrogate a departing bank chief executive on the reasons for his departure. So what on earth did they glean at the time?

This matters because it is now clear that Co-op Bank was in subsequent weeks and months chronically over-stretched.

Mr Richardson made another important claim, which is that Andrew Bailey, chief executive of the Prudential Regulation Authority (PRA), was wrong when he said that at the heart of Co-op Bank's current woes was bad lending by Britannia Building Society - which Mr Richardson previously ran and which merged with Co-op Bank in 2009.

He said Co-op's bad debts and losses are largely down to bad management of the loan book after he left Co-op Bank, other one-off losses unrelated to Britannia, and the imposition of a more conservative approach to assessing the quality of loans imposed on all banks by regulators at the end of 2012 and in 2013.

The PRA reacted immediately. It said: "We strongly disagree with Neville Richardson's view regarding the Britannia loan book situation. The evidence Andrew Bailey gave to the Treasury Select Committee was correct".