November 19, 2013 / 10:12 AM / 6 years ago

UPDATE 2-Co-op chairman quits over ex-bank boss drugs scandal

By Matt Scuffham and William James

LONDON, Nov 19 (Reuters) - The chairman of Britain’s Co-operative Group resigned on Tuesday as a drugs scandal involving its former bank chairman raised questions over governance standards and the ethical credentials of the mutually owned group.

Group chairman Len Wardle quit with immediate effect for his part in appointing Flowers, a 63-year-old Methodist preacher with little banking experience, who oversaw the Co-op bank’s near collapse and was recently caught on film allegedly arranging to buy cocaine and crystal meth.

The resignation marks the latest chapter in the downfall of a bank once championed as an ethical alternative to Britain’s investment banks.

Lawmakers are demanding answers from Britain’s regulators, who approved the appointment of Flowers, as part of a parliamentary inquiry that is also looking at whether politicians encouraged the bank to expand too quickly.

Political links between the Co-op and Britain’s opposition Labour party are also under scrutiny. The group is a financial backer of Labour and ruling Conservatives want to know how much influence Flowers, an ex-Labour councillor, had in the party.

Wardle said he was stepping down ahead of his planned retirement in May next year to take responsibility for hiring Flowers, who has been suspended from both the Methodist church and the Labour party.

“I led the board that appointed Paul Flowers to lead the bank board, and under those circumstances I feel that it is right that I step down now,” Wardle said in a statement.

Flowers, dubbed the “Crystal Methodist” by British tabloids, issued a statement through the Methodist Church on Sunday saying he was seeking professional help. He could not be reached for further comment.

The Methodist Church did not respond to requests for additional comment from Flowers on Tuesday.

A police spokesperson said they were investigating allegations made by the Mail on Sunday newspaper, which carried the initial story.

Co-op said Wardle would be replaced by Ursula Lidbetter, currently deputy chair of the group, which has a range of retail businesses as well as its bank. Lidbetter will lead the group through a review prompted by the Flowers scandal.

“These are very difficult times for the Co-operative Group and the wider movement, but I believe that we can and will come through this period stronger than ever by facing up to our challenges,” Lidbetter said.

GOVERNANCE ROLE

Flowers, a Methodist minister for 40 years who formerly chaired the drugs charity Lifeline, became a chairman of the Co-op bank from 2010 until July this year.

This was a period when it racked up huge losses and faced a 1.5 billion pound capital shortfall. The Co-op Group has since lost its majority stake in the bank to U.S. hedge funds that owned its debt.

Eyebrows were raised when Flowers told lawmakers on parliament’s Treasury Select Committee earlier this month that the bank had 3 billion pounds of assets on its balance sheet, when the true figure was 47 billion.

The committee now wants to question the regulators who approved his position at chairman of the board.

The FSA approved his appointment but required the Co-op Bank to install two deputy chairmen with banking experience to advise him. Flowers said that was because it was “fully aware that my skills were not those of a banker”.

The parliamentary inquiry, which was initially focused on the collapse of a deal to buy hundreds of branches from the state-owned bank Lloyds, has also raised questions over whether the bank was placed under political pressure to expand by successive Conservative and Labour governments.

When giving evidence in parliament Flowers said the Co-op had been given “considerable nods and winks” from supportive members of the finance ministry over a 2009 merger between the bank and Britannia Building Society, which ultimately saddled Co-op with a portfolio of souring property loans.

Flowers initially named Labour’s current finance spokesman Ed Balls, then a senior figure in the Treasury, as a supporter of the deal but later played down his personal involvement with Balls, and said he had not discussed the matter with him.

Giving evidence to the parliamentary committee on Tuesday, David Anderson, former chief executive of Co-operative Financial Services, said he received no political encouragement to pursue the Britannia takeover.

The Conservative Party said it wanted to know more about the extent of Flowers’s influence within the party, laying out a list of 13 questions for Labour leader Ed Miliband and Ed Balls.

The Labour party has been quick to distance itself from Flowers and suspended him on Tuesday for bringing the party into disrepute.

A senior Labour source said Flowers met privately with Miliband in March 2013 and he also attended two informal dinners in 2011 with Miliband and other members of a Labour business advisory board.

“The idea that Flowers was influential or important within the Labour party is absolute nonsense,” a senior Labour source said.

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