Ed Balls – the proud Co-operator

It’s taken three days of torrid headlines, but today Labour’s finally come out fighting about its association with the crystal Methodist and former Co-op banker Paul Flowers.

I sat down with a feisty Ed Balls who declared himself on numerous occasions “a proud Co-operator”, which I think must be the noun for someone who is a signed up member of the Co-operative movement, though I can’t be sure.

Although it’s Mr Balls’ dual role as a co-operative and Labour MP that’s had him on the run this week. Unlucky for him, Mr Flowers has said publicly that he personally signed off on a £50,000 donation to Mr Ball’s office because he believed in supporting his political friends. He also said he’d had lots of encouragement from the Shadow Chancellor to press ahead with Co-Op Bank’s disastrous deal to merge with the Britannia Building Society.

Ed Balls was vehement he had no plans to return the donation because he said it legitimately came from the Co-op Group and had nothing to do with Mr Flowers. Although it seems a little hypocritical on the one hand, to suspend Mr Flowers from the Labour Party for bringing it into disrepute, but on the other to keep a donation that may or may not have had some link to the now disgraced banker.

Likewise, Mr Balls totally denies having any conversation (face-to-face, telephone, email or otherwise) about the Britannia deal, saying it’s just Mr Flowers’ political name-dropping.

But that claim feels slightly uncomfortable too. In his manifesto to become Labour Party leader, Mr Balls spoke proudly of his involvement in helping to push through the legislation that was to lead to the first ever “super mutual”. When I asked him why he didn’t raise a flag when the deal was being done – at the height of the financial crisis – his only answer is that he was schools minister at the time (2009/10) and far be it from him to wade into other minister’s territories.

Paul Flowers and the party

Now that might wash coming from anyone other than the man who, as the former city minister, had presided over and actively encouraged the expansion of London’s financial services sector. A move that would later push Britain’s economy to the brink of collapse.

But Ed balls does acknowledge it looks weak that neither he nor Ed Miliband – nor seemingly anyone senior in the Labour Party- knew anything about Mr Flowers being suspended as a Labour councillor in Bradford for having inappropriate pornographic images on his computer. All the while Mr Flowers remained a Labour Party member and enjoyed a place on Ed Miliband’s special business advisory committee.

But as many questions as labour has to answer, the Tories don’t come up smelling of flowers from the Reverand Flowers affair either.

George Osborne supposedly put a tough new banking regulator in place that signed off on Mr Flowers being promoted to chairman of the Co- op bank when all around him knew he didn’t have the necessary skills for the job.

One banker close to the Co-op told me today Flowers’ lack of banking know-how was legendary. Then, having sanctioned his appointment, the regulator, the FCA, failed to spot any of the warning signs about Flowers or the financial state of the Co-op bank before it was too late.

What wisdom in the Lloyds deal?

All the while the Chancellor and his men appeared to actively encourage the Co-op to buy 600 Lloyds bank branches that were up for sale because, critics say, it would be a demonstration that the government was doing all it could to set up a fresh, untainted “challenger” bank on the high street that would rival the battered brands of RBS, Lloyd’s, Northern Rock and so on.

But was the Treasury so keen to make the Co-op press ahead with the deal that it failed to see the bank was wholly unqualified to pay for it as its provisions for bad loans kept getting bigger?

Mr Flowers said Mark Hoban, the former City minister, was a big supporter of the deal. So too, for that matter, was Vince Cable, he said.

It was Mr Balls’ turn in the spotlight today. But we need to hear from those others named too, particularly from the regulator, until we get anywhere close to the bottom of this saga.

Meantime, on Friday Co-op bondholders are due to vote on Friday to approve a new capital structure for the bank that will see American hedge funds taking a large stake in Britain’s only ethical bank.

If the bondholders were thinking they could reject the deal and force the Co-op bank to stay part of the overall group, after this week’s revelations from Reverand Flowers they had better think again.