The merger of the Co-operative Bank with the Britannia Building Society in August 2009 was a major source of the Bank’s subsequent difficulties, says the report, which blames the deal for Co-op Bank's near-collapse in 2013.
His report states both companies had problems that were exacerbated by the merger, pointing to failings in management and governance "on many levels". The lack of 'first-class' leadership was also cited as a reason for problems.
Sir Christopher told the BBC's Radio 4 Today programme: "It is the merger [between the Co-op Bank and the Britannia], not the Britannia itself that caused the problems."
Commenting on the Report, Sir Christopher Kelly said:
“This report tells a sorry story of failings in management and governance on many levels.
“The roots of the shortfall lie in a merger between the Bank and the Britannia Building Society which should probably never have happened. Both organisations had problems. Bringing them together exacerbated those problems. It might have worked if the merged organisation had received first class leadership. Sadly it did not. The Co-operative Bank executive management failed to exercise sufficiently prudent and effective management of capital and risk. The Banking Group Board failed in its oversight of the Executive. The Group Board failed in its duty as a shareholder to provide effective stewardship of an important member asset. Collectively they badly let down the Group’s members.
“The lessons we set out are far from novel. It does no credit to those involved that they must be learnt again. I hope my report will help the Group and the Bank in their efforts to rebuild organisations of which their members and customers can once again be proud.”
Richard Pennycook, Interim Group Chief Executive of The Co-operative Group, said:
“Following the wake-up call of our recently announced £2.5bn loss, Sir Christopher Kelly's report today lays bare the failings of management and governance that caused it. It is a sobering assessment which shows clearly that The Co-operative Group's loss of control of its Bank could have been avoided. The management that instigated this disaster for the Group are no longer in place; the flawed governance structure that failed to apply the right checks and balances, however, remains. Our colleagues, our members and our customers now look to the Group and Regional Boards to deliver the reforms which are so clearly necessary.”
Ursula Lidbetter, Chair of The Co-operative Group, said:
“Sir Christopher Kelly’s report serves as a stark reminder of the scale of change required in the governance of The Co-operative Group – something we have been clear we are already committed to. We thank him for his detailed and thorough work. The Group Board is leading the governance reform process and is putting a resolution containing four key principles to our membership next month. The Board awaits with keen interest the Governance Review to be published shortly by Lord Myners. Sir Christopher’s conclusions must strengthen our collective resolve, underlining as they do the urgency of the need for far-reaching fundamental change. We must ensure the mistakes of the past are never again repeated.”
