LONDON, April 17 Britain's Co-operative Group
will report a loss of more than 2 billion pounds on
Thursday, laying bare the full damage done by disastrous
acquisitions, a drugs scandal and an exodus of executives that
have put its future as a mutual into doubt.
Losses at the group, whose activities range from
supermarkets to funeral services, are expected to be up to 2.5
billion pounds ($4.2 billion) for 2013, according to a source
close to the matter.
The crisis at the 170-year-old Co-op, which claimed its
ethical credentials set it apart from commercial rivals, started
at its bank with an ill-fated takeover of Britannia building
society, which saddled it with a portfolio of souring property
The bank, facing a 1.5 billion pound capital shortfall, was
restructured last December, with bondholders including U.S.
hedge funds taking control and the group's stake falling to 30
Co-op Group still owes Co-op Bank 263 million pounds from
its initial 1.5 billion pound recapitalisation and is
considering whether to inject more cash as part of a further 400
million pound fundraising by the bank to cover the cost of past
misconduct such as overcharging for mortgages.
That decision is likely to depend on whether it can raise
funds to do so. The group said in February it would sell its
farms business and was considering a sale of its pharmacy chain.
Bankers say the pharmacy business could fetch between 450
million and 500 million pounds while the farms could be worth at
least 150 million pounds.
Co-op's image has been tarnished by former Co-op Bank
Chairman Paul Flowers being charged over possessing drugs. The
former Methodist minister is due to appear before magistrates
The financial problems at the wider Co-op Group, a major
lender to Britain's opposition Labour party, have been
compounded by a reduction in the value of stores it acquired in
a 1.6 billion pound deal in 2009 to take over the Somerfield
Former chief executive Euan Sutherland and senior
independent director Paul Myners have led efforts to reform and
modernise the customer-owned group and bring a commercial focus
to decision making.
But fierce resistance to change from some members of the
group's board, which is elected from regional and local
co-operative societies, resulted in both of them quitting.
Myners, who will depart in May, warned in March that the
Co-op faced extinction unless it reformed to become more
Sutherland quit in March, after just 10 months in the job,
saying it was impossible to reform the group unless its
directors adopted a more commercial approach.
Myners, a former government minister, has urged the group to
create a smaller board with the skills to hold executives to
Co-op's board is made up of members from its regional boards
and independent Co-operative societies and is entirely
non-executive, meaning no director is involved in the group's
Co-op members will vote on Myners' planned reforms at the
group's annual general meeting on May 17 but he has warned the
chance of his proposals being adopted is "quite low".
Following Sutherland's departure, Richard Pennycook, who
joined the group as finance director last June, became acting
Pennycook was finance director of the supermarket group and
played a key role in turning that business around after it
acquired rival Safeway in 2004.
($1 = 0.5977 British Pounds)
(Reporting by Matt Scuffham and Paul Sandle; Editing by Anthony