EVERY cloud has a silver lining. Peter Marks, former chief executive of the Co-op Group, told MPs yesterday that some good may come out of the current travails of the mutual’s fallen bank.
While acknowledging it was a tragedy, Marks said to a frustrated – sometimes bemused – Treasury select committee that it may teach the Co-op not to overstretch its management model in future. Let that be an ethical lesson to you.
However, with hedge fund value opportunists about to assume effective strategic control of the Co-op Bank to keep it afloat, it seemed a curious take on things by the former boss of the finance arm’s parent.
Even then Marks muddied waters. He said he warned the Co-op parent board that there was a danger of management overstretch in other areas of the organisation, whose businesses range from food to pharmacies and funerals; but he did not agree with the Co-op bank’s chief executive Neville Richardson, now departed, that there was a risk of overstretch in the financial division – 40 per cent of the mutual. That was a bad call.
Despite this disagreement, Marks was undaunted by his subordinate’s concerns. He decided to press ahead with the acquisition of Lloyds’s 600 branches, a star-crossed venture blown by the discovery of a massive capital hole in the Co-op Bank’s finances.
The unfortunate upshot is that the Co-op is handing over its banking arm to creditors including US hedge funds in order to seal a £1.5 billion rescue.
The impression at the committee was that the Co-op had a dysfunctional and inherently risky operating model between the parent board and its ring-fenced banking board.
It seemed to allow Marks to exert unofficial droit de seigneur on banking decisions when he decided, but to avoid responsibility when it suited. So he told MPs he did not “drive” the ill-fated acquisition of the Britannia building society in 2009 – that was the work of the bank’s chief executive at the time, David Anderson – but Marks voted for it as a non-executive member of the banking board.
He took responsibility as a banking board non-executive, he said, but not as group Co-op chief executive. Magnanimous of him, some might say.
However, Marks took a far more active part in the proposed acquisition of Lloyds’s Project Verde assets, claiming last year when the sun still shone on the deal that he had “got the shirt off his back and his cufflinks” of his Lloyds counterpart, Antonio Horta-Osorio, in the negotiations.
With hindsight, the acquisition of Britannia – stuffed with dodgy commercial property loans and buy-to-let mortgages – was an error, Marks conceded.
But he declined to be drawn on Treasury committee chairman Andrew Tyrie’s pithy inquiry as to whether he considered it a “big, medium-sized or small error”. Apart from that, there was rather a lot of “not that I can recollect” and “not that I am aware” from Marks, usually a bluff figure whose bluff the MPs called.
There was a hint of the committee’s systematic dismantling of former HBOS chief executive James Crosby in the way Marks wriggled on the hook of personal responsibility for the Co-op’s fall from grace into the hands of distressed US debt funds led by Silver Point Capital and Aurelius Capital Management.
But as Tyrie noted, when the esoteric structured investment vehicles, mis-selling and mis-strategies hit the fan in the banking industry, most bosses cleave to the defence of the buck starts here.