Co-Op Chairman Quits Early as Former Bank CEO Defends Losses

Co-Operative Group Ltd.’s chairman stepped down earlier than planned as its banking unit’s former chief executive officer said its acquisition of Britannia Building Society didn’t cause the lender’s near collapse.

Len Wardle will leave immediately, rather than in May as scheduled, and will be replaced by Deputy Chairwoman Ursula Lidbetter, the Manchester, England-based company said in a statement today. Wardle, 69, led the board that appointed Paul Flowers as chairman of Co-Operative Bank Plc, he said.

Co-Op Group is reviewing its structure after the Mail on Sunday reported on Nov. 17 Flowers had bought illegal drugs in Leeds, northern England. Flowers was the bank’s chairman from March 2010 until he was replaced by Richard Pym in June. The group, which last month ceded control of its bank to help plug a 1.5 billion-pound ($2.4 billion) capital shortfall, said in a statement today it is facing “difficult times,” though will emerge “stronger than ever.”

David Anderson, who until 2009 led Co-Operative Financial Services, which later became Co-Operative Bank, said writedowns of loans at Britannia Building Society, with which Co-Op merged in 2009, weren’t large enough to “bring down the bank.” Anderson had initiated merger talks with Britannia, he said.

“The loan book was considerably worse than we thought it was going to be,” he told a Treasury Committee hearing today. “But I don’t believe it was sufficient to cause the situation the bank now finds itself in.”

Britannia’s soured loans were the “main issue” that brought the lender down, Bank of England Deputy Governor Andrew Bailey told lawmakers in July.

Compensation to customers sold loan insurance they didn’t want, or need, writedowns in the value of the bank’s computer systems and changes to the way loan impairments were calculated also contributed to the bank’s capital hole, Anderson 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.

-- Editors: Jon Menon, Steve Bailey

Before it's here, it's on the Bloomberg Terminal.