News Column

Co-op report: why bonuses mattered

May 1, 2014

Jill Treanor,

Sir Christopher Kelly's report into how the Co-operative Bank was left with a £1.5bn capital shortfall last May contains a number of anecdotes, but one which he picks out relates to the way the accounts were drawn up for the 2011 financial year. He appears to be illustrating that bonuses mattered, even at the ethically motivated, mutually owned bank. Kelly points out that the additional provision would have had the effect of nearly halving the bank's £40m bonus pool for its employees and directors.

"In February 2012, on a Friday afternoon, prior to the bank publishing its 2011 annual report and accounts, the bank finance team, risk team and CFO agreed that an additional £20m [of provisions for bad loans] should be charged against the corporate portfolio," Kelly writes.

So, the finance team worked over the weekend to update the draft, only for the extra £20m provision to be reversed on the Monday morning. "The reversal was thought by some of those involved to have followed a conversation between the bank CEO and the group CEO. But there is no direct evidence of this," Kelly's report said.

The bank's acting chief executive at the time, Barry Tootell, apparently ordered the reversal although he has no recollection of these events. The group chief executive, Peter Marks, denies any conversation took place.

Before approving the annual report and accounts the audit committee was not told of this change and the auditor concluded that although the level of provisions was acceptable, the initial provision was towards the "more optimistic end" of the acceptable range.

Does it matter? The finance team who worked over the weekend "were aware" of the effect that the £20m provision would have on the bonus pool, Kelly concludes.

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Source: Guardian Web

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