Former directors of Britannia Building Society have written to MPs to challenge evidence given by the UK’s top banking regulator, claiming he was wrong to say their lender would have collapsed without a takeover by the Co-operative Bank.
In a letter to Andrew Tyrie MP, chairman of the Treasury select committee, the former board members said Andrew Bailey, the head of the Prudential Regulation Authority, had been incorrect to argue that losses at Britannia were a major cause of the Co-op Bank’s subsequent woes.
The directors, including Rodney Baker-Bates, who was chairman from April 2008 until the merger, claimed that two-thirds of the £1.5bn capital hole that felled the Co-op did not relate to Britannia. The merger in 2009 “was not a rescue of either party”, they wrote in the letter published on the TSC’s website.
In his appearance before the TSC on February 11, Mr Bailey told MPs that the takeover of Britannia had taken the mutual “out of the limelight” during a turbulent period for the banking sector.
Asked if the lender would have failed if not for the merger, he said: “Bear in mind I was responsible for resolution at the time and bear in mind the febrile conditions at that time, my view at the time was, yes, it would.”
The former Britannia directors said they were not aware of any conversations or correspondence from regulators during the period of the merger which suggested Britannia was anything other than a going concern.
They cited Clive Adamson, the regulator responsible for supervising Britannia at the time of the merger, as saying the takeover was not a rescue.
In his testimony to the TSC, Mr Adamson also said that the Britannia had been running a “higher-risk business model” and would be safer as part of a larger group. He told MPs in January it was “hard to speculate” if it would have survived on its own or not.
The Bank of England declined to comment on the former Britannia directors’ letter. However, Mr Bailey has previously strongly disagreed with claims by Neville Richardson, who led Britannia before the merger, that there had been no big problems with the mutual’s loan book.
The Co-op Bank was last year forced to launch a recapitalisation after a £1.5bn hole appeared on its balance sheet. It is 70 per cent owned by bondholders, including several US hedge funds.
In 2011 the group was selected as preferred bidder for 630 Lloyds Banking Group branches. That deal collapsed because of the Co-op’s capital problems. Mr Baker-Bates joined the Co-op board after the Britannia merger.
Separate emails from Mr Baker-Bates to colleagues released on Friday reveal his concerns about the proposed Lloyds branches deal, which he voted against in 2012 along with fellow Co-op Bank director David Davies.
In one, dated July 13 2012, he said that while the proposed purchase price was “attractive”, the Co-op Bank’s capital ratio was stretched and “will need accounting engineering by KPMG”.
He added: “I know there is great ‘political’ support [for the deal] but so there was for the original HBOS/Lloyds deal which brought Lloyds to its knees and is why this is all happening.”