Britain's 'ethical' Co-operative Bank slumped further into crisis on Tuesday after its former chairman was filmed allegedly planning to buy illegal drugs, while further revelations surrounded his sex life. Paul Flowers, a Methodist minister, apologised after The Mail on Sunday weekly tabloid published allegations involving crystal meth, crack cocaine and ketamine.
The damaging revelations sparked on Tuesday the resignation of Len Wardle, the current chairman of parent firm the Co-operative Group and who led the board that appointed Flowers three years ago. He will be replaced by his deputy Ursula Lidbetter. The Sun newspaper meanwhile alleged that Flowers, 63, had used his Co-operative email account to set up drug-fuelled gay sex sessions with rent boys.
Wardle said in a statement on Tuesday that it was "right" to step down because he had led the board that appointed Flowers in 2010 to chair the bank, which prides itself on its ethical investment policy. Lidbetter added: "These are very difficult times for The Co-operative Group and the wider movement, but I believe that we can and will come through this period stronger than ever by facing up to our challenges."
The Mail on Sunday alleged over the weekend that Flowers was caught on camera discussing the purchase of illegal substances. The paper said the event occurred just days after he had bungled an appearance before lawmakers on parliament's Treasury Select Committee to explain its dire finances.
At his appearance on November 6, Flowers said that the Co-operative Bank's balance sheet had £3.0 billion of assets when in fact the figure was £47 billion. He also appeared confused about its loans and investments. The scandal further damages the bank's reputation, two weeks after it was forced to hand control to US hedge funds to plug a £1.5-billion ($2.4-billion, 1.8-billion-euro) black hole.
Flowers has apologised in a statement issued through the Methodist Church in Britain, blaming pressures in his personal life. "This year has been incredibly difficult, with a death in the family and the pressures of my role with the Co-operative Bank," he said.
"At the lowest point in this terrible period, I did things that were stupid and wrong. I am sorry for this and I am seeking professional help, and apologise to all I have hurt or failed by my actions." The Co-operative Group has launched an investigation into "any inappropriate behaviour" and a "root-and-branch review" of the organisation.
And Flowers, who chaired the lender until June when he resigned over the surprise capital shortfall, has been suspended from the Methodist Church. A former local political councillor, Flowers has been suspended also from the main opposition Labour Party. "This is another big blow to the Co-op bank's ethical image," said Andre Spicer, professor of organisational behaviour at Cass Business School in London.
"It is hard to image a bank retaining ethical credentials when it is run by hedge funds and was chaired by a minister who was allegedly caught shopping for cocaine," he told AFP. Flowers, who was paid an annual salary of £132,000 at the Co-op, has been a Methodist minister for 40 years and was formerly chair of drugs abuse charity Lifeline.
Earlier this month, the Co-operative Group announced plans to close 50 of its 324 bank branches and axe a "significant" number of jobs in a rescue plan. Under the deal, investors who purchased bonds in its loss-making banking division, including US hedge funds, will be given a 70-percent stake in the lender. That leaves Co-op Group - a mutual supermarket-to-banking business owned by its seven million members - with a minority shareholding of 30 percent in its banking division.
The company's disastrous financial situation was caused by its 2009 purchase of British mortgage lender Britannia - which was saddled with bad loans - and the collapse earlier this year of a deal to buy 632 branches run by Britain's state-rescued Lloyds Banking Group.
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