Co-op Close To Ending Pursuit Of Flowers Cash

The Co-operative Group is close to abandoning an attempt to reclaim a severance payment worth more than £30,000 paid two years ago to the disgraced former chairman of its banking arm.

Sky News has learnt that some directors of the Co-op believe that continuing to pursue Paul Flowers for the sum is counter-productive because of the legal costs involved.

The disclosure comes just days after the Co-op Bank's board during Mr Flowers' tenure was savaged by the banking and City regulators for a series of failings which led to its £1.5bn bailout by a group of hedge funds.

The Financial Conduct Authority and Prudential Regulation Authority are continuing to investigate former Co-op Bank executives, including Mr Flowers, with formal bans and fines among the possible range of penalties.

Mr Flowers was paid £31,000 in 2013 as the first instalment of a £155,000 severance package awarded in lieu of notice.

Sources close to the Co-op pointed out that its new management team had acted swiftly to halt the remaining payments following allegations about Mr Flowers' private Life which led to him being dubbed 'the crystal methodist'.

The former Co-op Bank chairman attracted opprobrium after his ignorance about the size of the lender's balance sheet while giving evidence to MPs.

While Mr Flowers was not directly named in the regulators' settlement notices last week, the scale of ineptitude and obfuscation outlined by the authorities stunned many in the City.

The PRA said that it would have levied a fine of more than £120m on the Co-op Bank if its finances had been in a sufficiently robust state to cope.

In a statement issued to Sky News on Tuesday, a Co-op Group spokesman said:

“We continue to believe that Paul Flowers should repay the £31,000 paid to him by the Group back in 2013 in lieu of notice.

"We still have options open to us to recover the money but we have to spend our members’ money wisely and balance the costs we would incur to get the money back against what we would be likely to recover.

"As always we will strive to do what is in the best interests of members.”

The severance payments were the responsibility of the Co-op Group, rather than the Co-op Bank, because his contract with the former was terminated earlier than scheduled.

One insider said it was important "not to throw good money after bad", although he insisted that a final decision had yet to be taken.

The turmoil at Britain's biggest mutual is finally beginning to abate after two years in which the financial strain of a series of poorly timed acquisitions threatened its future.

Mr Flowers' personal troubles became an emblem of the dysfunctional governance of the UK's biggest mutual, which has since faced a complete overhaul of its management, while shedding thousands of jobs under new leadership.

Allan Leighton, the respected former Asda chief executive and ex-Royal Mail (LSE: RMG.L - news) chairman, has taken over the Group's chairmanship, with former Wm Morrison finance chief Richard Pennycook installed as its chief executive.

Last year, the Co-op Bank was the only major lender to fail stress tests set by the Bank of England, while the Group has been forced to sell its pharmacies and farming interests in a bid to repair its finances.

Niall Booker, the Co-op Bank chief executive, has committed to remaining in place until the end of next year, although there has been persistent speculation that it will ultimately be folded into another UK high street lender, such as TSB or Clydesdale.

The Treasury has said that it will conduct an inquiry into the Co-op Bank debacle, although this will not get under way until after the PRA and FCA have concluded their investigations (Other OTC: UBGXF - news) .