UPDATE 1-Former Co-op bank boss warned against Lloyds branch deal
* Richardson says deal created unacceptable risk
* Richardson says Britannia not to blame for Co-op problems
* Regulator says strongly disagrees with parts of evidence
* MPs investigating demise of branch purchase
By Matt Scuffham
LONDON, Sept 4 (Reuters) - The former boss of the Co-operative Bank said he opposed plans to buy 630 branches from Lloyds Banking Group and stepped down in 2011 because the board of its parent, the Co-op Group , failed to heed his warnings.
Co-op Bank pulled out of the 750 million pound ($1.2 billion) deal in April following nearly two years of negotiations amid concerns over its capital position. Britain's financial regulator has subsequently said it must raise 1.5 billion pounds to plug a hole in its finances.
In written evidence to British lawmakers, Neville Richardson said Co-op had too much on its plate integrating the Britannia Building Society, which it purchased in 2009, and a further deal would have created "unacceptable risk".
"I had expressed my grave concerns and, as it was clear to me that my experienced view was not going to be acted on, my position became untenable and we mutually agreed that I would leave," he told the Treasury Select Committee, which is examining why the deal collapsed.
In separate evidence, Co-op said it had not been set an explicit date by the regulator to reach a 3 percent leverage ratio target. Co-op Group's new chief executive Euan Sutherland is working to convince bondholders to approve a lifesaving funding proposal to fill the bank's 1.5 billion capital gap.
Under the plan, Co-op Group will provide 1 billion pounds - half from disposals and restructuring and half from bank loans. It hopes to fund another 500 million from writing down the value of its bonds.
Richardson also denied that bad loans acquired through the bank's purchase of Britannia, where he was once chief executive, were the main reason for the Co-op's problems, a view expressed to the Treasury Select Committee by regulator Andrew Bailey.
Richardson said Britannia was a "strong organisation" and he had "no idea why he (Bailey) would say that given the figures I have in front of me".
The Bank of England said in response: "We strongly disagree with Neville Richardson's view regarding the Britannia loan book situation. The evidence Andrew Bailey gave to the TSC was correct."
Co-op's 2012 accounts showed impairment losses of 469 million pounds, including 351 million pounds of impairments from its non-core business. Co-op said the bulk of its latest bad loans stemmed from Britannia's corporate real estate loan book.
Richardson said Bailey informed Co-op's board of his misgivings about the Lloyds deal, code named "Project Verde", at a dinner in July 2011 and suggested Co-op link up with a partner, possibly Rabobank.
Richardson said he had expressed his owns concerns over the plan to group chief executive Peter Marks and chairman Len Wardle, and stepped down when it became clear they would pursue the deal.
Richardson said he had subsequently been vindicated and suggested the Verde deal would have had disastrous consequences had it proceeded.
"What kind of inquiry would the committee be undertaking now if the deal (Verde) had gone ahead and then collapsed, with consequences that could well have been a replay of Northern Rock and the institutional crises that crippled the global financial system in late 2008," he said.
Richardson said the Verde negotiations contributed to Co-op's management losing focus on the integration of Britannia and distracted them from running the rest of the bank.
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