Cameron Uses Co-Op Bank Probe to Turn Scrutiny on Labour

U.K. Prime Minister David Cameron is trying to use the promise of a probe into Co-Operative Bank Plc to deflect criticism of the government’s supervision of the lender and score points off the opposition Labour Party.

The government will set out the details of the investigation into the bank in the coming days, Cameron’s spokesman, Jean-Christophe Gray, told reporters in London today, without giving any specifics. Co-Operative Bank’s creditors are poised to take control of the lender under plans to plug a 1.5 billion-pound ($2.4 billion) capital shortfall.

“There have to be serious concerns on the part of government that this bank got into trouble after they thought things had been cleared up,” Tim Bale, professor of politics at Queen Mary University in London, said in a telephone interview. It also offers an “irresistible chance” for Cameron’s Conservatives of “bringing up anything that casts doubt on Ed Miliband’s character,” he said.

Miliband, the Labour leader, was forced to defend his party’s links to the bank after its former chairman, Paul Flowers, a Methodist minister and former local Labour councilor, was accused by the Mail on Sunday newspaper of buying illegal drugs. Miliband told ITV News that his party had acted with “utmost integrity” in dealing with Flowers and the bank.

Flowers, 63, was a member of the Labour Party’s business advisory panel, though Miliband said he had met with him only once. The party, which has been linked to the co-operative movement throughout its history and has a number of lawmakers who stand as Labour and Co-Operative candidates, has received loans and donations from the bank.

Leadership Issue

Chancellor of the Exchequer George Osborne will discuss with regulators “what is the appropriate form of inquiry to get to the bottom of what went on,” Cameron told lawmakers in Parliament in London yesterday. Gray said Cameron had singled out Flowers, who left the bank in June this year, for criticism yesterday because “it’s very important to look at issues around leadership” at the lender.

With 18 months to go before elections, Cameron is keen to show his government has toughened rules governing banks after a series of scandals rocked the financial industry. Concern that regulators approved Flowers as chairman of a bank comes only a week after House of Commons Treasury Committee Chairman Andrew Tyrie, a Conservative, warned the government risked a “botched job” of banking reform by trying to speed up the passage of a bill setting new standards for the industry.

Regulator’s Probe

The board of the U.K. Prudential Regulation Authority, a unit of the Bank of England that oversees the largest banks, will discuss possible inquiries into Flowers tomorrow, according to a person familiar with the plans who requested anonymity because the meeting is private.

Len Wardle, 69, resigned this week as chairman of Co-Operative Group Ltd., which owns the lender and appointed Flowers as chairman of the bank. Co-Operative Group is reviewing its governance structure after the Mail reported on Nov. 17 Flowers had bought crystal meth and crack cocaine in Leeds, northern England. Flowers has apologized in a statement issued through the Methodist Church.

“This year has been incredibly difficult, with a death in the family and the pressures of my role with the Co-Operative Bank,” he said. “At the lowest point in this terrible period, I did things that were stupid and wrong. I am sorry for this and I am seeking professional help, and apologize to all I have hurt or failed by my actions.”

George Osborne

Labour’s Treasury spokesman, Ed Balls, said he’d had no individual contact with Flowers and dismissed suggestions that the Labour government in power until 2010 should have prevented his appointment that year.

“David Cameron yesterday alleged Ed Miliband and I knew about Paul Flowers when we didn’t,” Balls said on Sky News television today. “You should ask him and the government, why didn’t George Osborne act in the last three years when Paul Flowers was in charge.”

Under the 2012 Financial Services Act, the chancellor has the power to order an independent inquiry if he wants it to look at areas wider than those that would be covered by a single regulator.

Regulators pressed Co-Operative Group, which has businesses ranging from supermarkets to funeral parlors, to close a capital shortfall at its banking unit following the failure of its bid for more than 600 branches owned by Lloyds Banking Group Plc earlier this year. Co-Operative Group ceded control of the bank last month as part of a plan to fill the capital hole.

Cameron’s spokesman rejected a Financial Times report today that Osborne had pushed the European Union to spare the Co-Operative Bank from stricter capital requirements.

“What the U.K. was publicly arguing for earlier in the year in Brussels was for all and any U.K. mutuals to be treated in the same way as mutuals in other parts of the European Union,” Gray said. “That was a very public position.”


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