Following the announcement last week of £1.3bn of losses for its banking arm, the Co-operative Group today announced total losses of £2.5bn for 2013.
The losses are the latest blow to the group founded in 1844, whose activities range from supermarkets, travel agents to funeral services, which always claimed its ethical credentials set it apart from commercial rivals.
The losses – described by interim chief executive Richard Pennycook as the worst in the organisation’s history – included losses of £11.6m following the collapse of debt purchaser Equidebt.
The Co-Operative Bank – along with Lloyds TSB – faced the losses as the main floating charge holders of the business, which went into administration in June 2013.
Last December, the bank was facing a £1.5billion capital shortfall and restructured, with bondholders including U.S. hedge funds taking a 70 per cent controlling control stake in the group. The Co-operative Group still owes Co-operative Bank £263million from its initial £1.5billion recapitalisation.
In May 2013, the Co-operative Bank closed its doors to new business lending, saying it needed to repair its balance sheet from the toxic loans acquired from Britannia Building Society.
The Co-operative Bank and Britannia completed their merger it in early 2009, hailing the creation of a “supermutual” that would act in its customers’ interests while taking on the big banks.
From 2011, the “supermutual” attempted a takeover of more than 600 Lloyds Banking Group branches – “Project Verde”. That deal collapsed in April 2013, shortly before the Co-op Bank revealed a £1.5bn hole in its balance sheet.
However, the Co-operative group’s problems were not just confined to its balance sheet.
The abrupt resignation of chief executive Euan Sutherland last month and resistance by the Group’s board to the plans of Lord Myners, have added to the turmoil.
Controversial restructuring reforms put forward by Myners last month have seen opposition from the Co-op board, although some 1,200 staff of the mutual have publicly implored the proposals to be put into practice through trade union Unite.
Yesterday (16 April), former City minister Lord Myners pinned the blame for the disastrous figures on former managers “who were allowed to run amok like kids in a sweet shop”.
Speaking in the Daily Mirror, Myners said: “They bought up businesses willy-nilly – from Britannia Building Society to Somerfield supermarkets – and made catastrophically inept decisions over and over again. In the process, they crippled the group with huge debt.”
The scandal surrounding Paul Flowers, deputy chairman of the Co-operative Banking Group and the Co-operative Bank for three years who quit June 2014 over concerns about his “excessive” use of expenses, has only added to scrutiny of the Group.
Flowers was charged yesterday (16 April) with possession of both Class A and Class C drugs and bailed to appear before Leeds magistrates on 7 May.