By Matt Scuffham
LONDON (Reuters) - The former chief executive of Co-operative Bank (CPBB.L) had reservations about its abortive plan to buy hundreds of branches from Lloyds Banking Group (LLOY.L) in late 2011, he told lawmakers on Tuesday.
Barry Tootell stepped down in May this year after Moody's downgraded the mutual's debt rating to "junk" status, part of a chain of events which resulted in the bank falling under the control of bondholders including U.S. hedge funds.
Tootell told the Treasury Select Committee that he held concerns at various stages of negotiations over whether Co-op had the financial strength to buy 630 branches from Lloyds, in a deal meant to create a new challenger to Britain's biggest banks.
He said those concerns grew in 2012 when Co-op assessed the "economics of the business that we were acquiring and the cost of integrating that business into our business".
Tootell said those issues culminated in him recommending Co-op pull out of the transaction in April 2013 because it did not have the required capital strength. He added that executives at parent Co-operative Group (CWSGR.UL) had also harbored doubts.
"There wasn't unanimous approval at all times. There were quite rightly questions about the viability of the deal," Tootell told lawmakers on the committee.
The committee is examining why the deal was pursued prior to Britain's financial regulator identifying a 1.5 billion pound ($2.4 billion) capital shortfall at Co-op Bank earlier this year.
Tootell provoked criticism from committee members for his insistence that Co-op Bank's capital position was strong at the end of 2012.
"We were very careful not to mislead the markets by using terms such as 'strong' too glibly," Tootell said, citing the bank's core Tier 1 ratio of 9.2 percent.
Committee chairman Andrew Tyrie countered that the bank's capital position was such that "a puff of wind could blow you over".
Conservative Jesse Norman took exception to Tootell's claim that nothing in the corporate governance of Co-op could have been improved, while other members accused him of being "strategically forgetful" and of suffering "corporate amnesia".
Tyrie concluded the session, which had lasted for over two hours, by saying the committee had found aspects of Tootell's evidence to be "disappointing".
($1 = 0.6199 British pounds)
(Editing by Sinead Cruise and David Holmes)