UK

Co-Op Group Makes Record £2.5 Billion Loss After 'Disastrous' Year

17/04/2014 09:03 BST | Updated 17/04/2014 09:59 BST
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A sign sits above the entrance to a Co-Operative Bank Plc bank branch in Altrincham, U.K., on Tuesday, March 11, 2014. Co-Operative Group Ltd. Chief Executive Officer Euan Sutherland offered to resign after he publicly complained that a board member may have leaked details about his pay, according to a person with knowledge of the matter. The Co-Op Group were forced in October 2013 to give up control of Co-Operative Bank Plc to help plug a 1.5 billion pound capital hole at the division. Photographer: Paul Thomas/Bloomberg via Getty Images

The Co-operative Group has revealed losses of £2.5 billion, by far its largest ever, as it faces more pain from the biggest crisis in its history.

Richard Pennycook, the stand-in chief executive of the Co-op, said the results came after a "disastrous" year for the group and that the news "higlights fundamental failings in management and governance over many years".

His predecessor, Euan Sutherland, walked out claiming the business was "ungovernable".

Former City minister Lord Myners, who has drawn up proposals for a major reform of the business, pinned the blame for the disastrous figures on former managers "who were allowed to run amok like kids in a sweet shop".

He said in an article in the Daily Mirror: "They bought up businesses willy-nilly - from Britannia Building Society to Somerfield supermarkets - and made catastrophically inept decisions over and over again. In the process they crippled the group with huge debt."

The acquisition spree and the cost of bailing out its banking arm have left the supermarkets-to-funerals mutual with estimated debts of £1.2 billion, while lenders are reported to be increasingly troubled by the run of boardroom disputes hampering plans to shake up its corporate structure.

Regional membership boards and independent societies are thought to be unhappy about proposals to abolish the vast 21-member board and replace it with what has been described as a slimmed down "plc-style" body to take commercial decisions.

Lord Myners said the heavy losses would mean members seeing no dividend for years to come. "That's because those who have been managing the Co-op have let it go to the dogs."

Lord Myners has announced that he is to quit the board though he will stay on until his proposals are put to members at the Co-op's annual general meeting next month.

However he told The Guardian earlier this week that he believed the possibility of the changes being accepted was "quite low".

The immediate priority for the Co-op will be to decide whether to support an additional £400 million fundraising by its banking arm, which recently posted a £1.3 billion loss, is now under the majority control of bondholders following a rescue last year.

It still owns 30% of the bank but this stake will be diluted further if it is unable to come up with additional cash to support the rights issue.

The loss will reflect the scale of the crisis at the bank, which faced a £1.5 billion hole in its accounts, as well as write-downs on the value of the Co-op's acquisition of Somerfield in 2008.

In an interim review published last month, Lord Myners has said the group must take urgent steps to reform a "massive failure" of governance or it will go bust.

Unite union's Adrian Jones warned in a letter to the Co-op's regional boards: "On a daily basis we see the speed the sector is moving and with such pace, that unless the review is completed, there will be no chance of the Co-op being able to compete in such a cut-throat sector."