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Crisis deepens at Co-op Group as director quits

Thursday - 4/10/2014, 12:47pm  ET

Pedestrians walk past a branch of the Co-operative Bank in central London, Thursday, April, 10, 2014. The Co-op group is Britain's largest mutual society, active in everything from food, funerals and its own bank. But it developed a 1.5 billion-pound ($2.4 billion) financial black hole, and agreed last year to a contentious rescue plan giving hedge funds a huge share of its operations. (AP Photo/Alastair Grant)

Associated Press

LONDON (AP) -- The man brought in four months ago to help fix Britain's Co-operative Group is resigning, the company said Thursday, deepening the crisis at one of the country's most venerable businesses.

Britain's largest mutual society, active in everything from food to funerals to financial services, the Co-op is torn between the egalitarian principles on which it was founded in 1844 and the demands of 21st-century business.

Paul Myners, a former government Treasury minister and a member of the House of Lords, was hired in December as an independent director to oversee a review of the Co-op's governance, in the wake of big losses at the group's banking arm.

But his recommendations have drawn strong opposition from within the organization.

The Co-op said Myners would leave the board after a May 17 annual general meeting at which his proposals will be presented to members.

His resignation comes a month after Chief Executive Euan Sutherland quit, deeming the troubled organization ungovernable.

The Co-op Group has built its image on old-fashioned values. It has no shareholders but is owned by its members, and had billed itself as an alternative to the corporate greed that brought down many other banks in the wake of the 2008 global financial crisis.

But it ran into trouble after its 2009 acquisition of the Britannia Building society and its aborted interest in the purchase of 630 branches from another U.K. lender, Lloyds Bank.

Last year, faced with a 1.5 billion-pound ($2.4 billion) black hole in its banking division, the Co-op agreed to a rescue plan giving hedge funds a huge share of its operations -- to the outrage of many of the group's 7 million members.

The Co-op's squeaky-clean image was sullied even further when its former banking chairman, Methodist minister Paul Flowers, was filmed by a tabloid newspaper allegedly buying hard drugs.

Myners' initial findings, released last month, warned that the Co-op had been brought "to the brink of failure" and said it would run out of capital to support its businesses unless it addressed "acute systemic weaknesses" in its governance. He recommended restructuring the board along the lines of a publicly listed company.

But the largest of the independent societies that make up the group, Midcounties Cooperative, voted this week to oppose his proposals.

Co-op chairwoman Ursula Lidbetter said the group was "committed to reforming our governance and know that Lord Myners' report will provide invaluable stimulus for the changes we need to make."

The Co-op's financial picture remains uncertain. The group is expected to report a 2 billion pound loss next week.

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