Fresh fears for the Co-op as it slumps to £2.5billion loss
THERE were new fears over the future of the Co- op Group last night after it admitted it had slumped to a £2.5 billion loss last year.
Chief executive Richard Pennycook described the results as ‘devastating’ and the worst in the firm’s 150-year history. He said they should serve as a ‘wake-up call’ that the Co- op does not have a ‘God-given right to exist’.
The figures are particularly worrying because the Co- op Bank l ast week admitted it could go bust within months if does not raise £400 million to plug a fresh black hole in its finances.
About £120 million was expected to come from the Co-op Group because it owns 30 per cent of the bank, but the latest results cast doubt as to whether the cash will materialise.
Although anyone with less than £85,000 in the bank will have their savings protected under a government scheme, some investors, including those with bonds, could be at risk if the bank collapses.
Mr Pennycook insisted last night there was no ‘imminent’ risk of the Co- op Group collapsing.
But analysts said the future of the group was in serious doubt after the figures showed its debts have spiralled to £1.4 billion, including about £300 million owed to a syndicate of lenders, including Barclays, Lloyds and Royal Bank of Scotland.
The publication of the group’s annual report comes just a day after the bank’s former chairman, Reverend Paul Flowers, was charged for three counts of drugs possession.
The Co- op has 4.6 million banking customers, but the sprawling group –
‘This business is so close to going bust’
whose empire ranges from pharmacies to funeral homes and supermarkets – has 15 million regular customers and is owned by eight million members.
It is now at the centre of seven separate investigations over the near collapse of the bank, years of mismanagement and the sex and drugs allegations against Flowers.
Mr Pennycook said the group was ‘servicing its debt and has concrete plans supported by its banks to bring its debt down’, but last night analysts said lenders might finally run out of patience and pull the plug.
Independent financial analyst Louise Cooper said: ‘The business is so close to going bust that the assumption it won’t has to be examined.
‘Those that are owed in total £1.4billion by the Co- op have been remarkably relaxed, so far. It is best to assume they may not be for ever.’
Yesterday the influential Institute of Directors warned the Co-op may not survive unless urgent changes were made.
Dr Roger Barker, director of corporate governance at the IOD, said: ‘The scale of value destruction over the l ast few years has been catastrophic. Without major changes to its governance model, the Co-operative Group will struggle to survive over the medium term.’
Some £2.1 billion of the losses stemmed from the bank, which was rescued from collapse in December after a £1.5billion black hole was discovered in its finances.
The rescue deal involved the Coop losing control of the lender to US hedge funds, although it is now the biggest shareholder with a 30 per cent stake. The group yesterday admitted it would have to borrow more money to stump up the £120 million required to maintain its stake.
More details of the chronic mismanagement at the Co-op emerged as i t admitted i t paid almost £200 million last year to rent hundreds of empty shops.
The mutual said 645 shops and offices were either empty or rented out on the cheap, adding that the bill could increase to £443 million.
Mr Pennycook said the ‘rag bag’ network of shops was the equivalent of ‘good sized national retail business’.
He urged Co- op’s powerful regional members to back reforms drawn up by former City minister Lord Myners. These include replacing the Co- op’s board of elected members – which includes a nurse, a farmer and a retired telecom engineer – with a more typical FTSE-style board of experienced professionals.
Last week the Co-op plunged into further chaos when Lord Myners quit his position from the board after the powerful Midcounties Cooperative voted against his reforms.
His resignation came just weeks after former chief executive Euan Sutherland stepped down, declaring the Co-op ‘ungovernable’.
Last night trade unions raised concerns about the future of the Co-op’s 90,000 employees.
Unite national officer Adrian Jones said staff ‘ feel that their livelihoods are playing second fiddle to the internal power strug- gles’. He added: ‘ Today’s results should sharpen minds and leave people in no doubt of the need for reform to secure jobs and the Coop Group’s future.’
The Co-op’s dire finances could also make awkward reading for the Labour Party which has received millions of pounds in donations and cheap loans from the mutual over the years. Shadow Chancellor Ed Balls is one of 32 Labour Party MPs who receive financial sponsorship from the group.
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