Bank of England bans two former Co-op Bank chiefs from top City jobs
Two former bankers at the Co-operative Bank have been banned by the Bank of England from holding senior positions in the City after being found to have posed an unacceptable threat to the company’s financial position.
The Bank is fining Barry Tootell, a former Co-op Bank chief executive, £173,802, and Keith Alderson, who ran the corporate and business banking division, £88,890.
This is the first time Threadneedle Street has used its new powers to take action against individuals and Tootell is the first boss of any bank to be formally censured since the 2008 crisis.
Andrew Bailey, the deputy governor of the Bank of England, said: “Banks that are not well governed have the potential to pose a threat to UK financial stability. The actions of Mr Tootell and Mr Alderson posed an unacceptable threat to the safety and soundness of the Co-op Bank, which is why we have decided a prohibition is appropriate in these cases.”
The Co-op Bank had to be bailed out by hedge funds when a £1.5bn hole appeared in its books in 2013 . It also left the bank open to scrutiny of the way it was run; its former chairman Paul Flowers, a Methodist minister, was laterordered to pay £525 after admitting possession of drugs including cocaine and crystal meth.
Tootell was acting chief executive for 14 months before getting the role full-time in September 2012 but was placed on gardening leave in May 2013 following the bank’s downgrade to junk status. He was paid £623,000 by the time he formally left at the end of 2013.
The Bank of England’s regulatory arm, the Prudential Regulation Authority,found Tootell contributed to a culture at the bank that focused on the short-term financial position. The PRA said he did not adequately oversee the corporate loan book the Co-op took on when it merged with Britannia in 2009. The period of censure covers January 2009 and May 2013.
It cites moves by him to change bad debt charges, which in one instance which had the effect of maintaining the bonus pool although the Bank does not say this was his motivation.
Alderson, whose role has been subject to little public scrutiny until now, was found not to have properly assessed the risks from the Britannia loans nor escalated any concerns about the scale of impairments or bad debts. The regulator said his income was £423,000 and his period of censure covers August 2009 and May 2013.
The PRA said: “The Co-op Bank’s culture resulted in an environment in which some staff felt under pressure to meet impairment forecasts that had previously been set .” The regulator accepted that Alderson did not intentionally place pressure on staff to modify the bad debt provisions and that the origins of the problem lay in the Britannia business.
The Bank of England did not find Tootell or Alderson deliberately or recklessly breached the rules and did not make findings of dishonesty or lack of integrity in issuing the bans and fines.
The Financial Conduct Authority is still investigating and a formal reviewpromised in November 2013 by George Osborne into what went wrong at the bank cannot begin until the FCA has completed its work.
“We don’t comment on individual cases. While we have previously indicated that work will not start on the review until it is clear it will have no prejudicial effect on any future cases, we are not at that stage yet,” the FCA said.
In August, the two City regulators let the bank off a fine even though they found it had misled investors and pursued growth at the expense of its financial stability.
Simon Walker, director general of the Institute of Directors, said: “The Prudential Regulatory Authority has censured two executives for putting short-term profits ahead of the long term sustainability of the bank, but there was clearly also a failure on the part of the whole board.”
The Co-op Bank has already taken steps under previous rules to withdraw £5m of bonuses from a number of employees and there is no prospect of clawing back any more bonuses.
“The findings relate to previous management and the current management team continues to progress the turnaround, having raised additional capital, achieved considerable de-risking and improved brand metrics,” the Co-op Bank said.