By Kate Holton and Belinda Goldsmith
LONDON Dec 12 Britain's Co-operative Group, battling a capital shortfall at its bank and scandal over the unit's drug-taking former chairman, has appointed ex-Treasury minister Paul Myners to review its operations for a token one pound ($1.6) salary.
The company, a well-known high street presence for its banks and supermarkets, also said on Thursday a 1.5 billion pound recapitalisation of its ailing bank was proceeding as planned and it was "highly confident" the plan would be achieved.
Myners, whose appointment as chair of a governance review takes effect immediately, said the group was at a crucial point in its development and facing serious challenges in terms of business performance.
The Co-op was forced to cede control of its banking business to hedge funds after the scale of its capital shortfall became known. It was then hit by the arrest of former chairman Paul Flowers, who was in charge when the bank ran into trouble, as part of an investigation into the supply of illegal drugs.
Finance minister George Osborne ordered an inquiry into Co-op Bank and Prime Minister David Cameron asked why Flowers, a one-time local Labour politician and Methodist preacher with no banking qualifications, was judged suitable for the chairmanship during a period when the bank nearly collapsed.
Under the bank's refinancing plan to meet its capital shortfall, bondholders end up with a 70 percent stake and the Co-op Group's ownership will fall to 30 percent.
The plan was supported by 99.9 percent of relevant bondholders and now only needs a court sanction, expected around Dec. 18, the Group and Bank said in a joint statement.
Myners, 65, was previously Financial Services Minister in the Treasury and has been chairman of retailer Marks & Spencer , Guardian Media Group and Land Securities. He also reviewed the governance of mutuals for the UK Treasury.
He will assess how the Co-op Group is structured and run, and he said his aim was to restore its position at the heart of communities up and down Britain.
"The core part of the business has been going very well. The bank has got itself into a terrible mess and that has raised questions about the overall leadership of the group," Myners told BBC Radio.
"I am coming in to use some of my experience in other organisations to say what does good governance look like, how far are they are from that, and where are the gaps we are going to address."
He said he would be paid one pound a year for his work.
Myners, who is a member of the upper house of parliament, will join the Co-op board as a senior independent director. The Co-op said it was also looking to appoint two additional independent non-executive directors to its board.