Kelly report into Co-op saga could be turning point

For those who followed the situation closely – I count myself and colleague Harry Wilson and former colleagues Kamal Ahmed and Helia Ebrahimi in that number – the writing was on the wall from the go.

That former group chief executive Peter Marks, a man whose life work had been to unite the disparate parts of the Co-operative movement into the group we know today, could somehow pull off a major banking acquisition seemed beyond belief.

Although he spoke in a series of background briefings about the way the Co-op had acquired Somerfield in 2008, the thought that he could pull off another such coup was beyond belief.

As time rolled on, and more and more stories emerged about the problems the Co-op was having, so those doubts proved to be founded.

By the time Myners arrived at the Manchester-based mutual, the story had moved on significantly – from bank acquisition collapsing, to £1.5bn recapitalistion, to the Rev Paul Flowers, the “crystal” Methodist minister and all that went with him.

But he arrived, on his £1-a-year salary, with the aim of sorting out a British institution which had lost its way.

Driven by an interest in the mutual model, and a desire to help an organisation which funds politicians in a political party with which he was once aligned, Myners’ offer of help to then chief executive Euan Sutherland was a noble one.

His proposals, when they came, were sensible. Removing power from the 600 or so elected officials across the group’s 50-odd elected area, regional and national committees, and replacing them with non-executive directors.

The elected members would still have a voice, on ethics and traditions, but it would be the board which would make the strategic decisions that would allow the movement to rebuild and prosper.

At the time of writing, it looks unlikely that come the May 17 vote, his proposals will ever be heard of again.

Insiders suggest that, this week’s staggering losses aside, Sir Christopher Kelly’s independent report will be the turning point for Myners’ reforms.

Kelly was tasked with finding out what went wrong, and naming names. It is understood that he will do just that, and point to a number of former and current group board members who knew what was happening within both the group and the bank.

To date, the very unique way in which the

Co-op is run has allowed board members of both the group and the bank to hold their hands up in horror at the excesses of the past.

No more, say those with knowledge of Kelly’s findings. He will set out that there were those on the group board who knew what was happening under Marks and Flowers, and yet failed to stop either of the men. When those at the top of the organisation realise what their colleagues knew, they will back Myners, insiders suggest.

Yet, in classic Co-op style, the publication date of the Kelly report remains unclear. While spinners suggest late April, the Co-op’s website suggests it will be presented at the annual meeting. Should Kelly fail to turn voters’ heads, then there is a very real likelihood that the Co-op will spiral southwards yet further, and may never recover.

There are two groups whose reaction will be crucial in all this. One, the syndicate of banks which effectively prop up the Co-op Group. At the half-year in June, the level of debt stood at £1.2bn. It is expected to have increased to £1.3bn to £1.4bn by the end of December. This is by no means a small amount for a loss-making organisation, and yet the half-dozen or so banks who make up the syndicate have remained supportive. Until now.

If the much-needed governance reforms are kiboshed, the reaction of the banks will be key. Given the political sensitivities surrounding the Co-op, and the fact that state-backed Lloyds Banking Group and the Royal Bank of Scotland are two of the lenders, pulling the rug from under the Co-op is unlikely in the short term.

But there must be those lenders – the Co-op Bank included, particularly if, as we report today, the group fails to pay its recapitalisation share – who will be less disposed to continually supporting a busted flush.

The other group is the executives that Sutherland had gathered at the Co-op. From retail chief Steve Murrells to general counsel Alistair Asher to interim chief executive Richard Pennycook, the management team have all sacrificed well-paid jobs elsewhere in the name of saving the mutual. If the reforms which Myners set out are abandoned, don’t expect too many of them to stick around.

The coming week – and the three following weeks that lead up to the annual meeting in May – will be crucial in defining the future of the Co-operative Group.

A vote against Myners’ very honest, well-thought-through governance proposals will be yet another – if not the final – nail in the coffin of the 170-year-old mutual.

Rush of flotations raises questions

Market routs are one thing, but questions of fundamentals are quite another.

As colleagues Ashley Armstrong and Ben Martin point out today, the repricing that has gone on among some of London’s recent initial public offerings comes at the same time as investor fatigue amid a flurry of potential listings, each of which is too good to be true. One has to wonder how long the constant flow of floats can go on.

Contact James Quinn about his column at james.quinn@telegraph.co.uk and follow him during the week on Twitter @jamesrquinn

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