The mutual group behind Co-operative food stores, funeral services, insurance and pharmacies, revealed a £2.5billion loss yesterday, reflecting “fundamental failings in management and governance” and write-downs that almost caused the bank to fail.
Richard Pennycook, the interim group chief executive of the Co-operative Group, labelled last year the “worst in our 150-year history”, while chairwoman Ursula Lidbetter urged “fundamental reform” of the society.
The group’s calamitous performance in 2013 was dominated by the failure of its banking arm, which nearly collapsed after a £1.5billion hole was discovered in its balance sheet. Its holding in the bank has shrunk from total ownership to just to 30% as part of a rescue deal that saw it bailed out in December by bondholders and three US hedge funds.
But the group’s woes also extended to include the ill-fated acquisitions of the Somerfield supermarket chain in 2009.
The near collapse and loss of control of the bank cost the Co-op over £2billion, while write-downs from the Somerfield buy-up cost £226million.
Mr Pennycook, who is standing in as chief executive after Euan Sutherland quit abruptly last month claiming the group was “ungovernable”, noted the scale of the group’s problems due to mismanagement.
He revealed that group debts had been a “revelation to the board”, as had details of 650 surplus properties – the size of a national retail network – that the Co-op is now seeking to
As part of its recapitalisation last year, the group committed £333million to the rescue of its banking arm. Currently, £263million of this is still owing and it must find an additional £120million if it is to take part in a new £400million rights issue and preserve the size of its stake.
Mr Pennycook said: “We would need the consent of our banks in order to put money across.”
Operating profits at Co-op’s pharmacy, funerals and general insurance businesses all rose but Mr Pennycook said the insurance division’s earnings were still well below where they ought to be. He added that there had been more than 100 expressions of interest after the announcement that the group’s farms and pharmacies were up for sale.
The Co-op will hold its annual meeting on Saturday, May 17, when the mutual’s board will seek backing for proposals to reform its corporate governance.
But the proposals by Lord Myners, who also resigned from the group’s board in dismay, has received a frosty reception from Co-op shareholders.