Co-op pulls insurance sale as probe is launched
THE Co-operative Group did a U-turn on the planned sale of its general insurance arm today, as the accountancy regulator launched a probe into the auditing of the distressed mutual’s books by industry giant KPMG.
The dramatic developments came ahead of the appearance today before MPs of Lord Levene and Gary Hoffman, the chairman and chief executive respectively of the former NBNK Investments banking consolidation vehicle.
Levene will tell members of the Treasury committee that NBNK warned Lloyds Banking Group of the risks of allowing rival suitor Co-op Bank to take over more than 600 LLoyds branches last year because of capital and IT issues.
That deal later unravelled amid political embarrassment, with cross-party support for the Co-op Bank bid until it was found to have a £1.5 billion hole in its balance sheet.
Euan Sutherland, the Scots-born Co-op Group’s chief executive, today said the sale of the general insurance business had been scrapped because the restructuring agreed in November means it has to inject less capital to the sister bank than previously envisaged.
The already annouced sale of the Co-op’s life assurance and savings business will make up the shortfall in the capital restructuring that has left the troubled mutual majority-owned by hedge funds.
Sutherland added that the general insurance business – which includes home and motor policies – had received “a significant amount of [buyer] interest, which reflects its potential”.
City insurance analysts said the division had been expected to fetch several hundred million pounds. UK insurer Legal & General considered a bid, one source said.
Other potential suitors are said to have included private equity firms Anacap and Advent International, and Catalina Holdings, a consolidator of general insurance firms.
Sutherland said in a statement: “Having considered the sale process, and in light of the changed requirements on us under the Bank recapitalisation process, we believe it is in the best interests of our members, customers and lleagues, that we retain this strong business and develop it further.” The plan to sell the business had been announced last March.
It came as the Financial Reporting Council (FRC) today disclosed it was investigating KPMG’s book-keeping at the Co-op Bank. “The Financial Reporting Council has launched an investigation… into the preparation, approval and audit of the financial statements of the Co-operative Bank plc, up to and including the year ended 31 December 2012,” the watchdog said.
KPMG responded that it had done “robust audits” of the mutual and would co-operate with the FRC, whose probe comes amid existing inquiries into the bank by its two main regulators, the Prudential Regulation Authority and the Financial Conduct Authority.
The Co-op Group, which has operations spanning banking, supermarkets and funeral services, was rocked by the capital shortfall last year that triggered the Lloyds branches being bundled off instead into a new TSB Bank to be floated on the stock market next summer.
That was followed by the chairman of the Co-op Bank, the Reverend Paul Flowers, being arrested as part of a police inquiry into the supply of illegal drugs. Flowers had only recently been criticised at the Treasury committee for his lack of basic banking knowledge.