THE GOVERNMENT is launching a probe into what went wrong at the troubled Co-op Bank, the Prime Minister said yesterday, adding to the lender’s woes in a terrible month which has so far seen its ex-chairman exposed as a drug user and the Co-op Group lose majority ownership of its bank.
The probe will investigate the financial meltdown at the bank that has led to hedge funds taking a large stake in the lender, as well as the crisis in governance and behaviour.
The scandal at the bank exploded this week when former chairman Reverend Paul Flowers was exposed by the Mail on Sunday buying crack cocaine and crystal meth.
Flowers quit the Co-op Bank in the summer when regulators uncovered a £1.5bn capital hole at the lender.
“The chancellor will be discussing with the regulators what is the appropriate form of enquiry to get to the bottom of what went wrong here, but there are clearly a lot of questions that have to be answered” David Cameron said in parliament. “Why was Reverend Flowers judged suitable to be chairman of a bank? Why weren’t alarm bells rung earlier?”
Cameron also attacked Labour for its links with the so-called Crystal Methodist – Flowers was a Labour councillor but quit after inappropriate material was found on his work computer. He also sat on the Co-op’s board when it gave thousands of pounds to Labour and has advised Ed Miliband. The Labour leader hit back, arguing the Tories also have a history of associating with suspect characters.
Flowers has apologised for his behaviour and police are investigating him, while the Financial Conduct Authority has not yet decided if any action needs to be taken. Any new inquiry will have to wait until any police or regulatory action is taken.
No action is expected from the Bank of England, and the Co-op Bank’s deal to fill its capital hole is still expected to go ahead, as the investors have signed up to the scheme and are not thought to be able to back out. Cameron’s announcement comes as the bank is already being questioned by the Treasury Select Committee of MPs who want to know why its bid for Lloyds branches collapsed this year.
The chairman of that committee, Andrew Tyrie MP, said the new probe must be led by outside experts. “The authorities cannot be seen to be marking their own work.,” he said.