How do you convince someone to go for a chief executive job which six other people have held in just nine years? That is the question headhunters are asking themselves as the Co-operative Bank finds itself in a familiar situation following the surprise resignation of boss Andrew Bester last week.
“I think it is going to be a very challenging search for any headhunter,” says Kate Grussing, the founder of Sapphire Partners, who was last year tasked with finding a new Bank of England governor and has just filled the top seat at bank lobby group UK Finance. “It is clearly a tough job requiring broad and deep experience in banking, with enormous regulatory exposure and strategic challenges, where remuneration is going to be constrained.
“Understanding why Andrew left the role would be a key question I would want to understand if I was leading the search for his successor.”
The group’s line is that the former Lloyds banker decided to quit after just two years in the job, and right in the middle of a turnaround plan, because his “ambition was to complete the major transformation phase of the turnaround”, which he has now done.
But those in the industry don’t buy it. Despite his obvious stamina – the ex-accountant has completed 28 marathons and was head of commercial banking at bailed-out Lloyds in the years after the financial crisis – many believe he simply had enough. A former colleague notes that the 54-year-old is “highly principled”, questioning if he resigned over a disagreement, while a chief executive at another bank says they suspect he got fed up with the slow pace of recovery following the group’s brush with collapse in 2013.
“Perhaps he thought he could sell the bank when he took on the role [in 2018],” they suggest, echoing the view of some bank analysts. “The job must have been exhausting.”
A takeover of the Co-operative Bank has been on the cards for years. After a failed attempt to find a buyer in 2017, the lender agreed a £700m rescue deal with its US hedge fund owners, of which four of them were involved in its 2013 bailout, in a plan that saw it cut historic ties with the wider Co-operative Group.
Just over a year later, it is believed to have approached Barclays, but talks never progressed beyond the exploratory stage.
Then, just before the coronavirus crisis hit in December last year, its owners reportedly hired Goldman Sachs to sound out buyers.
The move was said to be at odds with the views of the board, although Bester was reportedly part of informal talks with several big banks. He insisted earlier this year that he was not thinking about consolidation. Many think his successor should be.
“I really do think M&A is the only solution for Co-op Bank. It can trundle on but the hedge funds [which own it] are likely to be getting a little bit impatient,” says John Cronin, a bank analyst at Goodbody.
“I think the most likely acquirer would be Virgin Money as it would bring more low-cost current accounts to the table and they’ve been pushing hard to grow in that channel. I wouldn’t rule out the largest banks [being interested] but it’s more likely to be a distressed situation.”
The next chief executive will no doubt be expected to spearhead talks with counterparts at big banks or draw up a radical alternative that will speed up its turnaround. Attempts to revive fortunes have been notably slow-moving and progress has been hampered by the coronavirus crisis.
The Manchester-based lender, which is in the midst of a five-year turnaround plan, is aiming to return to profit in 2022, but fell deeper into the red in the first half of this year after it was forced to put aside £11.2m to cover loan impairments linked to the pandemic. In August, it also announced that it was closing 18 branches and cutting 350 jobs, equivalent to 11pc of its workforce, due to the impact of the pandemic.
But the bank’s woes run much deeper than the unprecedented issues facing the industry this year.
Its problems go back to its ill-fated 2009 merger with the Britannia Building Society which, like the Co-op Bank, promoted itself as an ethical alternative to big shareholder-owned banks but ended up damaging the lender’s chances of taking them on.
When a £1.5bn capital shortfall was uncovered in Co-op Bank’s accounts in 2013, Britannia’s loan book was described by regulators as the “key factor” behind its disastrous financial situation. Its downfall coincided with an explosive drugs scandal surrounding its then chairman Paul Flowers, a former Methodist minister who earned the nickname the “crystal Methodist” after he was filmed buying class-A drugs only days after MPs grilled him about the bank’s problems.
An inquiry into the lender’s conduct over the period of 2009 to 2013 later found “serious and wide-ranging failings” in its risk management and a culture that prioritised its short-term financial position – uncomfortable criticism for a bank that was promoting itself as an ethical alternative to its big rivals. Even now, it struggles to be seen as a serious competitor.
“Safe to say the impact of Co-op on the rest of the banking industry is zero,” said one UK bank analyst when asked for his view on the lender. Although Bester is staying at the bank until a replacement is found, his resignation means the embattled lender has been plunged into uncertainty at a time when the economic outlook darkens and coronavirus cases spike.
Bester, who switched off from the crisis earlier this year by playing the board game Cluedo, told this paper in April that the bank had an “operational resilience” that it didn’t have 18 months earlier, and “like everyone” in the banking sector, the focus was now on adjusting.
But the coming months will not be easy. Bester’s replacement will have to play detective to work out how the bank can turn around faster in the midst of a crisis.
A spokesman for Co-op Bank declined to comment.