Co-op Group scraps general insurance sale planMonday 20 January 2014 14.49
Britain's Co-operative Group has scrapped the sale of its general insurance business following a restructuring deal which means it does not have to contribute as much capital to its struggling bank as initially envisaged.
The business had been expected to fetch several hundred million pounds and was due to have been sold during this year.
Co-op Group's banking unit has been hit by a capital shortfall and a drugs scandal involving its ex-chairman.
It said today it had decided to keep the general insurance business because the group now had to contribute less capital to the bank under a revised restructuring plan agreed in November.
Co-op, which is owned by its members and has operations spanning banking, supermarkets and funeral services, was last year rocked after a £1.5 billion capital shortfall was identified at its bank and Paul Flowers, former chairman of the bank, was arrested as part of an investigation into the supply of illegal drugs.
A restructuring of the bank will leave hedge funds in control of that business and Co-op Group with a 30% stake.
The group said it can meet its reduced capital commitment to the bank through the already completed sale of its life and savings business and "the strategic management" of some property assets.
Euan Sutherland, chief executive of Co-op Group, said he had received "a significant amount of interest" in the insurance business, which provides home, motor and other insurance products.
UK insurer Legal & General considered a bid, a person familiar with the matter previously said.
Other potential suitors included private equity firms Anacap and Advent International, and Catalina Holdings, a consolidator of general insurance firms, according to media reports.
"Having considered the sale process, and in light of the changed requirements on us under the Bank recapitalisation process, we believe it is in the best interests of our members, customers and colleagues, that we retain this strong business and develop it further," Sutherland said in a statement.
The Co-op announced its plan to sell the business last March.
KPMG probed over Co-Op Bank audit
Accountancy firm KPMG is facing a regulatory investigation into how it audited the books of troubled UK lender Co-operative Bank in the years leading up to its near-collapse.
The UK's Financial Reporting Council (FRC) has launched an investigation in the wake of a £1.5 billion hole in the lender's finances that was discovered last year.
It will cover the way accounts were both prepared by the bank and reviewed by auditors, and is likely to extend back to 2009, the year it took over the Britannia Building Society.
The financial turmoil at the Co-op bank is widely attributed to the takeover as well as an abortive attempt to buy more than 600 branches from Lloyds.
The FRC investigation is likely to take around a year to conclude whether to bring disciplinary tribunal action. Sanctions can include fines as well as suspension of membership from accountancy bodies.
"The Financial Reporting Council has launched an investigation into the preparation, approval and audit of the financial statements of the Co-operative Bank, up to and including the year ended December 31, 2012," it said in a statement.
"As auditor to the bank, we believe that we have provided, and continue to provide, robust audits which provide rigorous challenge to the judgments and disclosures proposed by the bank's management. We look forward to co-operating with the FRC (and other regulatory authorities) in their investigations," KPMG said.
The new probe is the latest in a series of investigations into the Co-op, after the Bank of England's Prudential Regulation Authority (PRA) said earlier this month it would look at the role of senior executives.
Another regulator, the Financial Conduct Authority (FCA) said it was looking into "decisions and events up to June 2013".
Meanwhile, the wider Co-operative Group is carrying out a fact-finding investigation as well as a root-and-branch review of its structure in the wake of drugs allegations about former bank chairman Paul Flowers.
Former Treasury mandarin Christopher Kelly has been leading a review, expected to report in May, into what went wrong at the lender.
At the same time, MPs on the Treasury Select Committee have been carrying out their own inquiry, grilling senior Co-op executives and others involved with the bank in recent years, including representatives of KPMG.
A Treasury inquiry announced by Chancellor George Osborne has been put into deep freeze pending the outcome of the FCA and PRA investigations.