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Scandal Tarnishes a British Bank’s Reputation Scandal Tarnishes a British Bank’s Reputation
(about 7 hours later)
LONDON — Britain’s Co-operative Bank once prided itself on being a beacon of ethical standards in a financial sector blamed for the country’s economic problems.LONDON — Britain’s Co-operative Bank once prided itself on being a beacon of ethical standards in a financial sector blamed for the country’s economic problems.
But a series of scandals involving the struggling bank’s former chairman, Paul Flowers, who was also a Methodist minister, has tarnished its image, shined a harsh light on financial regulators and embarrassed Britain’s politicians. Three separate inquiries, including a police investigation, are likely to be conducted into issues that have risen in the case.But a series of scandals involving the struggling bank’s former chairman, Paul Flowers, who was also a Methodist minister, has tarnished its image, shined a harsh light on financial regulators and embarrassed Britain’s politicians. Three separate inquiries, including a police investigation, are likely to be conducted into issues that have risen in the case.
This weekend, the newspaper The Mail on Sunday published video online of Mr. Flowers, 63, in a car handing over 300 pounds, or about $486, allegedly to buy ketamine, cocaine and crystal methamphetamine. He was suspended on Wednesday from his ministry. This weekend, the newspaper The Mail on Sunday published video online of Mr. Flowers, 63, in a car handing over 300 pounds, or about $486, allegedly to buy ketamine, cocaine and crystal methamphetamine. He was suspended on Wednesday from his ministry. West Yorkshire police said that Mr. Flowers was taken into custody late Thursday in Liverpool.
Following the release of the video, it emerged that Mr. Flowers had resigned in 2011 as a councilor for the opposition Labour Party in Bradford, in Northern England, after adult material was found on his work computer. One newspaper published a series of lurid allegations about Mr. Flowers’s private life this week, and another publication reported that he quit a drugs charity over allegations of false expense claims.Following the release of the video, it emerged that Mr. Flowers had resigned in 2011 as a councilor for the opposition Labour Party in Bradford, in Northern England, after adult material was found on his work computer. One newspaper published a series of lurid allegations about Mr. Flowers’s private life this week, and another publication reported that he quit a drugs charity over allegations of false expense claims.
In a statement reported by The Mail on Sunday, Mr. Flowers apologized for his actions and said he had suffered a difficult year, including the death of his mother and pressure over the Co-operative Bank. He said he was seeking professional help.In a statement reported by The Mail on Sunday, Mr. Flowers apologized for his actions and said he had suffered a difficult year, including the death of his mother and pressure over the Co-operative Bank. He said he was seeking professional help.
Chief among those suffering collateral damage is the leader of the Labour Party, Ed Miliband, because the bank that Mr. Flowers led until recently has strong links to Labour, to which it extended loans and made donations.Chief among those suffering collateral damage is the leader of the Labour Party, Ed Miliband, because the bank that Mr. Flowers led until recently has strong links to Labour, to which it extended loans and made donations.
But with the Co-operative Bank troubled by financial problems, the scandal has reminded Britons of the failings of bankers who are blamed for plunging the country into economic crisis, suggesting that the coalition government led by the Conservatives has so far failed to repair fully the system of oversight.But with the Co-operative Bank troubled by financial problems, the scandal has reminded Britons of the failings of bankers who are blamed for plunging the country into economic crisis, suggesting that the coalition government led by the Conservatives has so far failed to repair fully the system of oversight.
Mr. Flowers resigned as chairman of Co-operative Bank in June amid financial turmoil at the bank. It pulled out of a planned purchase of hundreds of branches of another bank, Lloyds, which had been rescued by taxpayers in the financial crisis.Mr. Flowers resigned as chairman of Co-operative Bank in June amid financial turmoil at the bank. It pulled out of a planned purchase of hundreds of branches of another bank, Lloyds, which had been rescued by taxpayers in the financial crisis.
The Co-operative Bank is part of the Co-operative Group, which is Britain’s largest member-owned business. The group has its origins in Lancashire, where the Rochdale Society of Equitable Pioneers was established in 1844, based on ideas of ethical trading and sharing profits among members.The Co-operative Bank is part of the Co-operative Group, which is Britain’s largest member-owned business. The group has its origins in Lancashire, where the Rochdale Society of Equitable Pioneers was established in 1844, based on ideas of ethical trading and sharing profits among members.
Mr. Flowers, who served as a minister in the Methodist Church for more than 40 years, worked his way through the ranks of the Co-operative Group to join its board in 2008, even though he had little background in banking.Mr. Flowers, who served as a minister in the Methodist Church for more than 40 years, worked his way through the ranks of the Co-operative Group to join its board in 2008, even though he had little background in banking.
The Co-operative Group has made donations to the Labour Party, which also has outstanding loans with the Co-operative Bank. Those close links have put Mr. Miliband on the defensive. On Wednesday, the Labour leader said he had acted with “complete integrity” in his dealings with Mr. Flowers, insisting that he was “never my close adviser.”The Co-operative Group has made donations to the Labour Party, which also has outstanding loans with the Co-operative Bank. Those close links have put Mr. Miliband on the defensive. On Wednesday, the Labour leader said he had acted with “complete integrity” in his dealings with Mr. Flowers, insisting that he was “never my close adviser.”
In an interview with ITV News, Mr. Miliband said Mr. Flowers was “somebody I met with on one occasion and had meetings with a wider group on a couple of other occasions.”In an interview with ITV News, Mr. Miliband said Mr. Flowers was “somebody I met with on one occasion and had meetings with a wider group on a couple of other occasions.”
That followed exchanges in Parliament on Wednesday in which Prime Minister David Cameron, a Conservative, sought to capitalize on Mr. Miliband’s discomfort. “What we can now see is that this bank, driven into the wall by this chairman, has been giving soft loans to the Labour Party, facilities to the Labour Party, donations to the Labour Party, trooped in and out of Downing Street under Labour, and is still advising the leader of the Labour Party,” Mr. Cameron told lawmakers.That followed exchanges in Parliament on Wednesday in which Prime Minister David Cameron, a Conservative, sought to capitalize on Mr. Miliband’s discomfort. “What we can now see is that this bank, driven into the wall by this chairman, has been giving soft loans to the Labour Party, facilities to the Labour Party, donations to the Labour Party, trooped in and out of Downing Street under Labour, and is still advising the leader of the Labour Party,” Mr. Cameron told lawmakers.
But the state of the Co-operative Bank, and the fact that Mr. Flowers was its chairman, has raised awkward questions for the government and for regulators as well.But the state of the Co-operative Bank, and the fact that Mr. Flowers was its chairman, has raised awkward questions for the government and for regulators as well.
In an appearance at a Parliament hearing this month, Mr. Flowers, was accused by the chairman of the banking standards committee, Andrew Tyrie, of ignorance of basic financial figures about his former bank.In an appearance at a Parliament hearing this month, Mr. Flowers, was accused by the chairman of the banking standards committee, Andrew Tyrie, of ignorance of basic financial figures about his former bank.
In a statement on Thursday, Chris Leslie, a Labour spokesman, said the bank’s financial problems raised “serious questions” for the chancellor of the Exchequer, George Osborne, about how the Co-operative Bank got into trouble on his watch, and his role, over the last three years.In a statement on Thursday, Chris Leslie, a Labour spokesman, said the bank’s financial problems raised “serious questions” for the chancellor of the Exchequer, George Osborne, about how the Co-operative Bank got into trouble on his watch, and his role, over the last three years.
“The chancellor and his ministers actively encouraged the bank’s failed bid for 632 Lloyds branches, with reports of 30 ministerial meetings to smooth the way for this deal,” Mr. Leslie said.“The chancellor and his ministers actively encouraged the bank’s failed bid for 632 Lloyds branches, with reports of 30 ministerial meetings to smooth the way for this deal,” Mr. Leslie said.
The Co-operative Bank’s financial problems date to its ill-fated merger in 2009 with the Britannia Building Society, which suffered heavy losses over property loans.The Co-operative Bank’s financial problems date to its ill-fated merger in 2009 with the Britannia Building Society, which suffered heavy losses over property loans.
In August 2011 the bank announced its bid for the 632 Lloyds branches, a deal that was praised by Mr. Osborne the following year. But in April 2013 that offer was withdrawn, and the following month Moody’s downgraded the Co-operative Bank’s credit rating.In August 2011 the bank announced its bid for the 632 Lloyds branches, a deal that was praised by Mr. Osborne the following year. But in April 2013 that offer was withdrawn, and the following month Moody’s downgraded the Co-operative Bank’s credit rating.
The Co-operative Group disclosed this month that Britain’s Financial Conduct Authority was reviewing statements made by the company in 2012 about its financial strength.The Co-operative Group disclosed this month that Britain’s Financial Conduct Authority was reviewing statements made by the company in 2012 about its financial strength.
In order to avoid collapse earlier this year, the Co-operative Bank unit agreed to a debt restructuring in which its parent company relinquished a 70 percent stake to a group of bondholders in exchange for a cash infusion. Those included Silver Point Capital and Aurelius Capital Management, both hedge funds.In order to avoid collapse earlier this year, the Co-operative Bank unit agreed to a debt restructuring in which its parent company relinquished a 70 percent stake to a group of bondholders in exchange for a cash infusion. Those included Silver Point Capital and Aurelius Capital Management, both hedge funds.
After the debt restructuring, the mutual company will be the bank’s largest shareholder, with a 30 percent stake. The Financial Conduct Authority is expected to move quickly, given the recent allegations involving Mr. Flowers and the resignation this week of the Co-operative Group’s chairman, Len Wardle. Mr. Wardle cited revelations about Mr. Flowers’s behavior in a statement.After the debt restructuring, the mutual company will be the bank’s largest shareholder, with a 30 percent stake. The Financial Conduct Authority is expected to move quickly, given the recent allegations involving Mr. Flowers and the resignation this week of the Co-operative Group’s chairman, Len Wardle. Mr. Wardle cited revelations about Mr. Flowers’s behavior in a statement.
The Financial Conduct Authority declined to comment. Britain’s Treasury is expected to order a separate inquiry into in the bank and Co-operative Group when the authority’s inquiry concludes.The Financial Conduct Authority declined to comment. Britain’s Treasury is expected to order a separate inquiry into in the bank and Co-operative Group when the authority’s inquiry concludes.

Chad Bray contributed reporting.

Chad Bray contributed reporting.