David Davis comments on the Treasury regarding Co-op

As published in the Financial Times:
Treasury should have spotted Co-op weakness says Davis
The Treasury has been accused by a senior Tory MP of missing warnings that the Co-op bank’s bid to buy 630 Lloyds bank branches was heading for failure, adding fuel to Labour attempts to pin blame on George Osborne for the Co-op fiasco.

David Davis, a former Tory leadership contender, claimed the Treasury and regulators should have been aware of concerns that the Co-op bank – which nearly collapsed with a £1.5bn capital hole – was too weak to buy the branches.

Mr Davis claims the Co-op’s problems were set out in January 2012 in a letter to the Lloyds board from Lord Levene, a City veteran who headed a rival bid for the branches.

The Tory MP said the problems should have been spotted by the Treasury, Lloyds itself and UK Financial Investments, which handles the government’s stake in Lloyds.

“There are really serious questions to answer about what they were all doing,” Mr Davis said. “These problems were apparent to a rival and would have been – with a bit of work – to anyone else.”
At the time when Lord Levene wrote the letter he was chairman of NBNK, a new banking vehicle. He said: “Both internally and externally the deal is felt to be at high-risk of falling because of a number of factors.”

He highlighted four risks to the Co-op’s ability to complete the purchase: its ability to finance the deal; existing pressure on management from other projects; its outdated IT systems; and risks to customer service.

Sir Win Bischoff, Lloyds’ chairman, told the Treasury select committee earlier this year that he had no recollection of receiving the document from Lord Levene. The bank confirmed on Thursday it had no record of seeing it.

Ed Balls, shadow chancellor, claimed on Thursday that Mr Osborne had been “asleep” during the bidding process, which ended when the Co-op’s capital shortfall became apparent. The Treasury said the Lloyds/Co-op deal was a commercial matter and one for regulators.

Conservatives say the scandal involving the banks’s near collapse and allegations about drug use and the use of prostitutes by its former chairman, Paul Flowers, has raised questions about Labour’s link with the Co-op movement.

The Tories said Mr Flowers had approved a donation of £50,000 to Mr Balls’s office and pointed out that he was a business adviser to Ed Miliband, Labour leader. David Cameron has claimed that Mr Miliband must have known about his “past”.

Meanwhile it has emerged that Mr Flowers was allowed to claim around £65,000 in “unlawful expenses” including a credit card and lease car by a drugs charity, according to the Charity Commission, the regulator.

He resigned as chairman of Lifeline after the charity questioned his claims in 2004.

The commission said it appeared the trustees had allowed expense claims “that were not in line with charity or company law and not allowed by the terms of the charity’s governing document”.

Once Lifeline contacted the commission, “our main concern at the time was the governance of the charity, which had allowed unlawful expense payments to be authorised”.

By then Lifeline had tightened its policies, the commission said, so no investigation was made. It stressed there was no evidence of wrongdoing or “bad faith” by Mr Flowers himself.

http://www.ft.com/cms/s/0/797e086c-52d9-11e3-8586-00144feabdc0.html