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Bailey tells MPs Co-op's Flowers was pompous

CO-OPERATIVE Bank chairman Paul Flowers was "pompous" but he was regarded as effective by fellow directors, senior City regulator Andrew Bailey has told MPs.

VERDICT: City regulator Andrew Bailey was speaking to MPs on the Treasury committee. Picture: Gordon Terris
VERDICT: City regulator Andrew Bailey was speaking to MPs on the Treasury committee. Picture: Gordon Terris

The chief executive of the Prudential Regulation Authority said Co-op Bank's attempt to buy the Verde portfolio, which included Lloyds TSB Scotland, was not doomed to failure.

Mr Bailey also insisted the Bank of England has seen no evidence to back separate allegations that it condoned or was aware of manipulation in the foreign exchange market.

Rev Flowers has been criticised for his apparent lack of knowledge about Co-op Bank and is being investigated by the police for allegedly buying illegal drugs.

Mr Bailey told MPs on the Treasury committee: "I thought he was pompous to be honest.

"I thought he had no financial background."

But he added: "I have been through the records and I have looked at the comments made by all the members of the board we interviewed and none of them criticised Paul Flowers, interestingly. They generally said he was an effective chairman."

He added: "The Paul Flowers scorecard is distinctly mixed."

Mr Bailey said he now vets candidates for senior positions at banks. "To be clear: I do the interviewing."

Speaking at the Treasury committee's final evidence session in its investigation into the collapse of Co-op's £750 million bid to buy Verde, he said: "It was not obvious that the Verde transaction would be bad for Co-op."

He said there was broad political backing for a deal that created a challenger to the established banks but denied he had faced any pressure to ease it through.

The rival rejected offer from NBNK "has always been subject to far less scrutiny," he said.

Mr Bailey also suggested former Co-op Bank deputy chairmen Rodney Baker-Bates and David Davies, who had opposed the original bid to buy the Verde, branches, were more equivocal about a reworked deal proposed in 2012.

After the deal collapsed last year, Co-op revealed it had a £1.5bn capital shortfall.

A subsequent restructuring has put it under the control of hedge funds.

He said of Barry Tootell, the interim chief executive of Co-op Bank who quit: "I do not think he was at all a strong chief executive."

Co-op was particularly hard hit by provisions on commercial property loans made by Britannia, the building society with which it merged in 2009.

"I think more of the responsibility for the embedded problems goes back to the management of Britannia," Mr Bailey said.

But he said the merger was necessary to save the building society.

"My view at the time was it (Britannia) would have failed," he said. This, he said, could have led to the failure of more institutions as they bore extra costs. But he denied the claim of John Thurso, MP for Caithness, Sutherland and Easter Ross that "this was really a case of two cars looking for a crash".

Mr Bailey said the merger could have worked if strong management had been put in place, costs cut, systems improved and the economy had recovered.

Mr Bailey was scathing of the Co-op Bank's failure to reform.

"It has gone from being a small high-cost bank to being a large high-cost bank," he said.

A report earlier this month said Bank of England officials told currency traders at a meeting in April 2012 it wasn't improper to share impending customer orders with staff at other firms.

"I should say that we have no evidence yet," Mr Bailey said.

He confirmed he backs the government's opposition to a European Union cap on bonuses and is concerned about "pressure to increase the fixed element of remuneration" for financiers in place of variable pay.

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