A Financial Conduct Authority official defended the decision to approve Paul Flowers as chairman of Co-Operative Bank Plc even though the regulator knew he had a criminal conviction and lacked financial experience.
“Flowers was the right person at that time with the information I had,” FCA Director of Supervision Clive Adamson said in testimony to Parliament’s Treasury Committee in London today. “It was agreed with him that he didn’t have sufficient financial-services experience.”
U.K. Chancellor of the Exchequer George Osborne in November ordered an independent inquiry into events at the Co-Op Bank following Flowers’s arrest as part of a drugs probe after he was filmed buying crack cocaine by a U.K. newspaper. Co-Operative Group Ltd., the bank’s parent, relinquished control of the lender to bondholders last year to help plug a 1.5 billion-pound ($2.5 billion) capital shortfall.
Flowers had disclosed a 1981 criminal conviction for gross indecency to regulators, though this wasn’t viewed as relevant to his appointment, Adamson said.
The Mail on Sunday reported Nov. 17 that Flowers bought crystal methamphetamine and crack cocaine in Leeds, northern England. Flowers, who is a Methodist minister, was Co-Op Bank’s chairman from March 2010 until June of last year.
“Today, he wouldn’t be approved,” Adamson said.
Speaking to the committee in November, Flowers said he didn’t have the skills of a banker. He’d worked for four years at Westminster Bank, a forerunner to Royal Bank of Scotland Group Plc’s NatWest bank, before becoming a Methodist minister, and his expertise was probably “out of date,” he said.
Flowers was allowed to appoint two deputy chairman to provide additional banking knowledge, Adamson said.
Regulators pressed Co-Operative Group, which has businesses ranging from supermarkets to funeral parlors, to close the capital shortfall at the bank following the failure of its bid for more than 600 branches owned by Lloyds Banking Group Plc, a deal that would have more than doubled its number of outlets.
Co-Op Bank will close about 50 of its 324 branches by the end of 2014, it said Nov. 4 when it announced the deal under which creditors will own about 70 percent of the company. It will cut a “significant” number of jobs among its 7,800 staff.
Bank of England Deputy Governor Andrew Bailey told lawmakers in July the “main issue” that brought down Co-Op Bank was the assets it acquired from Britannia Building Society in 2009. Those souring loans prompted the lender to report a fourfold increase in impairments in 2012 and a pretax loss of 673.7 million pounds.