LONDON (Reuters) - The mutually-owned Co-operative Group’s CWSGR.UL former chief executive Peter Marks told MPs on Tuesday the fate of its ailing Co-operative Bank CPBB_p.L was “a tragedy” and questioned whether it can be run on an ethical basis by the hedge funds poised to take control.
Co-op Group, which currently owns the Co-op Bank outright, on Monday bowed to the demands of a group of bondholders, including U.S. hedge funds Aurelius Capital and Silver Point Capital, and agreed to a restructuring of the bank which will leave it with a 30 percent stake.
The move risks alienating the bank’s 4.7 million customers, many of whom were drawn to it because of its perceived ethical focus, and Marks said the changes left the principles and traditions of the 150-year-old Co-op movement under threat.
“Hedge funds are there to maximise profit; that is what their sole purpose in life is. I think to be truly ethical, you can’t do that,” Marks told a parliamentary committee on Tuesday.
Marks said the Co-op, the supermarkets to funeral services conglomerate which boasts of being owned by over 7 million customer members and an annual turnover of more than 13 billion pounds, can continue to be run with an ethical focus but said the same set of values can no longer apply at the bank.
“From a banking perspective the ethical initiative doesn’t apply any more,” he told the Treasury Select Committee.
He also distanced himself from an ill-fated decision to acquire Britannia Building Society in 2009. The bank’s problems have been blamed in part on soured commercial real estate loans it inherited from Britannia, taken over in a deal meant to create a customer-owned lender with the scale to compete with Britain’s biggest high street banks.
Marks, who at the time was chief executive of the Co-op Group and a director of the Co-op Bank, told the Committee that the merger had, in hindsight, been a mistake.
He added that he was not qualified to make decisions about the bank’s strategy and the architects of the deal had been the former chief executives of the Co-op Bank and Britannia - David Anderson and Neville Richardson.
“I can’t take responsibility for something I wasn’t in full control of, which was the bank. We do all have to take some responsibility but I was not approved by the Financial Services Authority to run a bank,” Marks told the Committee.
Marks worked his way to the top of the Co-op after starting out as a 17-year-old management trainee at the Yorkshire Co-operatives in 1967, eventually becoming chief executive of Britain’s biggest customer-owned business in 2007.
“I spent my life working for the Co-op. It’s a tragedy, what has happened, but we did achieve a lot of success in the retail business. To say it was all a disaster would be wrong. The group, I think, still has a very good future,” he said.
Following the session, committee member John Mann compared Marks to disgraced former RBS (RBS.L) boss Fred Goodwin.
“The ex Co-op boss had the same mentality as Fred Goodwin who reached for the sky and then left others to clean up the mess,” he said on social networking site, Twitter.
Co-op Group said on Tuesday that its non-executive chairman Len Wardle would step down in May next year. Wardle has recommended that his replacement be independent of the Co-operative movement.
“I want to persuade our members that the Co-operative Group should now look to an independent chair to lead the business, working side-by-side with the members who represent the movement,” Wardle said.
Additional reporting by Joshua Franklin; Editing by Greg Mahlich