Co-op Bank to escape penalties for failures

The Times Harry Wilson

Last updated at 12:01AM, August 11 2015
Co-operative Bank

The Co-op Bank’s failure led to the Co-op Group ceding control of the business to bondholders

The Co-op Bank is set to dodge financial penalties over the failings that led to its near-collapse and a £1.5 billion bondholder-funded bailout after regulators concluded that fines would threaten the lender’s turnaround.

The Financial Conduct Authority and the Prudential Regulation Authority are expected today to announce the closure of their joint investigation into the bank and the black hole that was discovered at the heart of its finances. Despite finding evidence of weak oversight of the business, they will not impose large fines.

Officials are understood to have decided against hitting the bank with a multimillion-pound penalty with an eye to the continuing efforts to repair its capital base, according to unnamed sources cited by Sky News.

They are expected, however, to continue with potential enforcement actions against senior directors and managers. Among those who could face censure is the Rev Paul Flowers, the disgraced former Co-op Bank chairman, whose lack of financial knowledge was exposed at a hearing of the Treasury select committee, where he confused basic details about the running of the lender.

The Co-op Bank’s failure led to the Co-op Group ceding control of the business to bondholders after a debt-for-equity swap that left the lender largely in the hands of American hedge funds. At the moment the Co-op Group owns about 20 per cent in the bank, but several hedge funds are eyeing a potential offer for its remaining holding as part of a wider effort to offload the whole bank.

A stock market listing of the Co-op Bank is seen as a distant prospect amid the continuing shrinkage of the business.

The Co-op Bank declined to comment.

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