Co-op’s ‘wasted’ former chairman: how did Paul Flowers get the job?

That a reverend – Paul Flowers – was caught on camera buying crack cocaine and crystal meth is bad enough. That he’s also the former chairman of the Co-operative Bank – Britain’s supposedly ethical alternative to the big bad boys of the high street – couldn’t be any worse.

Just as we thought the scandalous story of the Co-op Bank had all but played out – with its overthrow by a clutch of American hedge funds the final chapter – we now learn its former boss had questionable banking skills and,  seemingly, something of a drug problem too.

A series of embarrassing texts show Reverend Flowers bragging about getting “wasted” after a grilling in front of the Treasury select committee earlier this month. The same grilling where he confidently told MPs the Co-op Bank had £3bn in assets by the time he left in June this year – when in actual fact it had nearly £48bn. Nor was he aware of how many loans the bank had approved as well as numerous other basic gaffes.

Yet this is the man who was awarded “approved persons” status in 2009 by the banking regulator, the then Financial Services Authority, when he became a director on the bank’s board.

Banking experience

The FSA, now called the Financial Conduct Authority, declined to give an interview on Monday. But a source inside the FCA said Reverend Flowers had been approved as a non-executive director because of his range of “extensive corporate, business and local government experience”.

This fitted with the Co-op’s desire to appoint a board that had a diverse range of skills and experience.

But regardless of what the bank wanted, the first role of the regulator should have been to check Paul Flowers had the relevant banking experience. Apparently, they believed he did, even though it took a committee of MPs less than an hour to demolish those credentials. And Euan Sutherland, the Co-op Group’s new chief executive, took about a day to see Flowers didn’t have the right experience and get on the phone to bring in Richard Pym instead.

And even when Flowers was appointed to the role of chairman in 2010, there was no legal requirement for the regulator to re-interview him because he was already on the approved persons list. The FCA source said on Monday that because the Co-op was an important bank it had asked Flowers to appoint two deputies (one with extensive banking experience) to help oversee his duties. A recommendation you could say pointed to some concern about Flowers’ ability to do the job himself.

But if that was the case neither of the deputies spotted anything was wrong with Flowers or his decisions for the bank either. The most disastrous of which was to press ahead with plans to buy hundreds of bank branches from Lloyd’s in a deal worth £1bn (Project Verde).

Of course we now know that deal would never be. Mounting losses at Britannia, another disastrous Co-op acquisition, led the bank to report a massive loss and helped create the now infamous one and a half billion pound hole in its balance sheet. Verde was called off and Flowers and the bank’s chief executive Barry Tootle were summarily ousted this summer.

Co-op: as bad as the rest?

But the Flowers revelations are embarrassing for the government too, not least the chancellor himself, who had championed the Co-op as the next “challenger bank” on Britain’s high street. The leading, ethical light that would cleanse the industry from the mistakes of the past.

Labour believed that too – and let’s not forget the Co-op lent millions to the Labour party.

But what a mistake that turned out to be.

It’s now clear the Co-op was as much maligned as the cast inside RBS, Lloyds, Northern Rock et al. It just took longer for its bad behaviour to materialise.

But now that it has, there is a need for those responsible to be held to account. Yet so far the only independent investigation into what went wrong is being carried out by courtesy of Sir Christopher Kelly, appointed by the bank itself.

He is not due to report until May of next year. But to demonstrate it takes these revelations seriously, the government needs to launch its own full investigation too.

Britain’s only ethical bank was brought to its knees by incompetent and now it turns out unethical bankers, watched over by regulators, auditors and the politicians themselves. The time has come for the public to start getting some answers.

Follow Siobhan Kennedy on Twitter.