Sir David Davis comments on the ‘extremely serious situation’ of conflicting evidence on Project Verde

As reported in the Times:

“The former head of the Co-operative Bank stretched the credulity of MPs and elicited a withering put-down from regulators yesterday after claiming he had no responsibility for the bank’s £1.5 billion collapse.

Neville Richardson, who ran the bank from 2009 to 2011, denied any culpability and went further, claiming its problems would have been substantially reduced if colleagues had heeded his warnings not to pursue the acquisition of a 632-branch business being carved out of Lloyds Banking Group.

Mr Richardson, who had previously ran Britannia Building Society since 2002 and spearheaded its merger with Co-op Bank in 2009, emphatically rejected the suggestion that Britannia’s problem loanbook was responsible for the bulk of Co-op’s problems.

That contradicted evidence given in June by Andrew Bailey, the Bank of England’s Deputy Governor and head of its Prudential Regulation Authority.

Within minutes of the committee session ending, the Bank issued a blunt statement saying: “We strongly disagree with Neville Richardson’s view regarding the Britannia loan book situation. The evidence Andrew Bailey gave the the committee was correct.”

Andrew Tyrie, the committee chairman, told The Times after the session that the committee would be taking more evidence to get to the bottom of saga. “There’s a yawning gulf between the evidence of Mr Richardson and Mr Bailey,” he said.

One senior Tory MP, David Davis, said: “This is an extremely serious situation. These pieces of evidence are wholly inconsistent. It is clear someone is not telling the truth.”

Mr Richardson insisted that the principal reasons for Co-op Bank’s collase were the disruption and distraction of the Lloyds negotiations and a tougher approach from the PRA, which last year forced banks to make bigger provisions against suspect loans.

“It’s absolutely clear that when I left, the business was in good shape,” he said: the integration after the merger was on track and the bank had no issues with either regulators or auditors.

Asked about Mr Bailey’s evidence, Mr Richardson said, “I’ve no idea why he should say that, given the figures I have in front of me.” He was referring to his own written evidence in which he estimated that Britannia-originated loan losses only represented “around one-third” of the total impairments and significant items suffered by the bank in the 18 months to June 2013.

In the Co-op Bank’s own 2012 accounts, loan losses were set at £468.7 million, of which its non-core business — which was largely Britannia-originated loans — accounts for £351 million — or 75 per cent.
Mr Richardson described how he resigned in July 2011 after warning Co-op Group chief executive Peter Marks that the bank should not take on the Lloyds project on top of a string of other major plans including Project Unity — a plan to integrate parts of the bank into the parent group.

Trying to do so could lead to unacceptable “management stretch” and “disastrous consequences,” he said he warned at the time. When Mr Richardson learned he was not being heeded, he left by mutual agreement, taking a final-year package including compensation for loss of office of £4.6 million.

Brooks Newmark MP accused Mr Richardson of “ducking and diving” in his evidence and repeatedly asked him to take some responsibility for the bank’s problems in the light of his high rewards.

Mr Richardson declined, saying his friends recognised him as “a person of the highest integrity”. The easy option in 2011 would have been to stay on, he said: “If I was in this for the money, that’s what I would have done.”

Co-op Bank, which finally abandoned the Lloyds talks in April, is now in the throes of a restructuring in which Co-op Group is putting in £1 billion of fresh capital and bondholders are being asked to accept haircuts of about £500 million.”