One banker – although I use the term loosely – who might be wishing his mother could get him out of trouble is the Reverend Paul Flowers. This story has me spellbound. It is hard to know whether to laugh or cry. Flowers, who is now known by the sobriquet of the ‘Crystal Methodist’, was the chairman of Co-op bank which is owned by the Co-op Group, a mutual institution. Mutual institutions are owned by their depositors or policyholders and are not publicly listed on the UK stock exchange. I have to admit that until now the Abigail with attitude column has not focused its piercing gaze on the Co-op. This was a big mistake. The bank has been revealed as a cesspit of scandal and impropriety and it could well drag some big establishment figures down with it.
There are two parallel scandals – one personal, the other professional, and interlinked. In January 2009, Co-op Bank announced a merger with Britannia Building Society and, some three-and-a-half years later, the successor bank agreed to purchase 630 branches from Lloyds in a £750 million ($1.2 billion) deal. Then, in February 2013, the British regulators discover a £1.5 billion capital hole at Co-op Bank and the deal with Lloyds collapsed. This autumn, hedge fund bondholders might seize control of Co-op Bank as part of a restructuring.
In the centre of this drama sits the controversial figure of Flowers, a Methodist minister, who was appointed to the Co-operative Bank’s board in 2009 and subsequently rose to be chairman. Flowers stepped down in the summer, when the financial problems at the Co-op were revealed,
This month, unfragrant Flowers appeared before the British Parliamentary Treasury Select Committee, chaired by one of my modern-day heroes, Andrew Tyrie. Flowers revealed ignorance where expertise should have been expected. He stated that the Co-op Bank’s assets were £3 billion and was out by a factor of 15: the bank’s assets were actually £47 billion. Hardly a rounding error!
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Flowers also didn’t know the size of his former bank’s loan book. In short, his testimony made Bob Diamond’s embarrassing 2012 appearance in front of the committee look like a Hollywood movie with a happy ending. Tyrie’s summary was curmudgeonly and concise: “Today, we were provided with further evidence, if it were needed, that the chairman of a bank must have a good deal of financial experience… [Flowers’] appointment was a disaster. The checks on him seem to have been a box-ticking exercise.” Until Flowers joined the Co-op Group’s board, he was a Methodist minister and a Labour Party local government councillor in the north of England. Now tabloid newspapers have alleged that the supposedly respectable man of God enjoyed a debauched and sleazy life-style. There have been reports of purchases of illegal drugs, such as crystal meth and crack cocaine, and the hiring of homosexual prostitutes.
Apparently, Flowers was forced to resign from his seat on Bradford Council in 2011 when pornography was found on a laptop computer that he gave to the Bradford authority’s IT department for routine servicing. A spokesman for Bradford Council is quoted in one newspaper: “Inappropriate but not illegal adult content was found on [Flowers’] council computer.” “Honestly,” my mole snorted, “how can porn on a work computer ever be appropriate?”
The tentacles of the Flowers saga are far-reaching. The Financial Services Authority has been found lacking. It approved Flowers as a board member of Co-operative Bank in 2009. Moreover, Graeme Hardie, the FSA adviser who had an informal regulatory discussion with Flowers before he took over as chairman of the bank, was later given a seat on the Co-operative Bank’s board.
The politicians have also been tarnished. Flowers was a member of the Labour Party, which is bad news for the opposition party. But it gets worse – Co-operative Bank had a long-standing lending relationship with the Labour Party. And this April, according to The Times newspaper, Co-op Bank extended a new £1.2 million loan to Labour, some three weeks after the leader of the Labour party, Ed Miliband, had a private one-on-one meeting with Flowers to discuss banking reform. Moreover, last year the Co-operative Group donated £50,000 to Ed Balls, the shadow Labour Party chancellor.
However, the Conservatives are in no position to gloat, as it could be argued that they encouraged Co-operative Bank to acquire hundreds of Lloyds branches. The Financial Times quoted an extract from a speech that George Osborne, the Conservative chancellor of the exchequer, gave in February 2012: “I want new faces on the high street. I want upstart challengers offering new and better services that shake up the established players. We’ve made a start with the sale of Northern Rock to Virgin Money and the proposed sale of Lloyds branches to Co-op.”
For years, I have ranted against the mediocrity of banks’ executive boards. My invective against the boards of Lehman Brothers and JPMorgan unfortunately proved prescient. But having cast a cursory glance at the board of Co-op Bank, I feel I should take it all back. Press reports indicate that a plasterer, a nurse and a retired telecoms engineer were among the main board directors of the Co-op Group. However, when I examined the website, smiling faces peered out at me, but there were no biographies attached. Phone calls to the Co-op’s beleaguered press team went unanswered.
The Flowers saga is a distasteful episode that illustrates that all has certainly not been fixed in the banking landscape. But don’t let us forget that, in the aftermath of the financial crisis, the Co-operative Group was held up as an example of what the future ethical face of banking might look like. Indeed Co-op Bank’s website has a rubric entitled: ‘Ethics in Action’. This trumpets: ‘As a Co-operative business, we believe in ethical values… We have worked on numerous projects all over the world as we put our ethics into action to make a difference.’ How ironic is that?
How was your month? Please send news and views to abigail@euromoney.com.
