Good news and bad news as Co-op keeps its insurance arm

The Co-operative Group has decided it doesn't need to sell its insurance arm after all. Although the Financial Reporting Council still isn't impressed.

by Emma Haslett
Last Updated: 26 Feb 2014

A veritable slew of news from the Co-operative Group this morning – some (reasonably) positive, some altogether less so.

We’ll start with the positive: the group has realised that, despite it having been up for sale for 10 months and gone to second-round bids, it doesn’t actually have to sell its insurance business.

The group put the business up for sale (it’s estimated to be worth between £250m and £600m – nice and specific) in March last year, when it began to realise something wasn’t quite right with its balance sheet (not to mention its chairman). Then, in the summer, it uncovered a £1.5bn hole, and the sale became more urgent.

But the reception for its proposal to plug the gap with a ‘bail-in’, under which some bondholders would swap their debt for equity, was lukewarm at best. Aforementioned bondholders – the ones who were particularly upset – countered that they wanted more equity than originally proposed, a plan which was eventually accepted. The idea left the Co-op with just 30% of the bank – but also meant it only had to raise £400m, not the £500m it had anticipated. Which, in turn, means it doesn’t have to sell the insurance business.

The news isn’t going to go down well with everyone. Second-round bidding had become rather heated as the likes of Legal & General and AnaCap squared up to one another. But apparently chief exec Euan Sutherland felt the bids ‘undervalued the business’.

And so to the other news, which is rather less encouraging: accountancy watchdog the Financial Reporting Council says it has opened an investigation into KPMG’s auditing of the Co-operative Bank.

In a statement this morning, the FRC confirmed it had launched an investigation, adding that it would looking 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’s a bit awkward: for at least some of that period, Finanial Conduct Authority chairman John Griffith-Jones was senior partner and chairman of KPMG's UK arm during the period in question. Ouch...

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