King Warned Of Political Push For Co-op Deal

By Mark Kleinman, City Editor

The Governor of the Bank of England warned one of the bidders for more than 630 Lloyds Banking Group branches that its offer would fail because of "a political desire" to see a rival proposal from the Co-operative Group succeed.

Sky News can reveal that Lord King, who stepped down as Governor in June, told Lord Levene, the chairman of NBNK Investments, that the Co-op's bid had won political favour in Whitehall that would be difficult to overturn.

The disclosure of Lord King's remarks threatens to provide a 'smoking gun' for those who have insisted that there was explicit political interference in the £1.5bn branches auction as ministers sought to promote the mutual ownership model in the banking sector.

George Osborne, the Chancellor, and Lloyds directors including Sir Win Bischoff, its chairman, have consistently denied any attempt by ministers to influence the outcome of the auction.

The intervention of Lord King provides the latest twist after an extraordinary week in which a series of allegations have been made about the private life and professional competence of Paul Flowers, the Co-op Bank's former chairman.

The meeting between the then Sir Mervyn King and Lord Levene is understood to have taken place in July last year, just before Lloyds announced a firm intention to sell the branch network to the Co-op on July 19, 2012.

"He [Lord King] said that there was a political desire to see the Co-op acquire the branches," said a Bank of England insider familiar with the discussion.

News of the meeting, which is said to have been brief and focused on the Lloyds auction, provides the most powerful evidence so far of a belief within the most senior echelons of the City that Coalition ministers had a direct preference for the Co-op to expand by buying the branches.

Lord Levene and the Bank of England both declined to comment on last year's meeting.

It is not clear whether Lord King referred to individual politicians during the meeting with Lord Levene but his remark could nevertheless embarrass Mr Osborne, who publicly enthused about the Co-op Bank's expansion and who announced on Friday the terms of an independent inquiry into the mutual's troubles.

Bank of England insiders said the former Governor had harboured reservations about the Co-op's ability to undertake such a transformational deal although it is unclear whether such doubts were expressed during his conversation with the NBNK chairman or the extent to which they were then raised with banking regulators.

The Treasury said on Friday that the decision about the sale of the branches had been a matter for the boards of the companies and the relevant regulators.

The takeover of the 'Project Verde' network of 631 branches would have trebled the Co-op Bank's size and created a bank with nearly 8 million customers and a balance sheet of more than £30bn.

The Co-op originally won preferred bidder status from Lloyds on December 14, 2011. However, after discussions between the two parties stalled, Lloyds then announced on May 1, 2012 that it was no longer in talks with the Co-op on an exclusive basis and would consider other bids.

NBNK then assembled an improved offer but again lost out to the Co-op in July last year.

The Treasury is reported to have intervened in Brussels to help smooth a path for the Co-op to gain preferential treatment in relation to its capital position, with one aide to Mr Osborne telling the Financial Times this week: "We are totally unashamed in trying to help a British institution [the Co-op] and the British economy."

The decision to sell the Verde branches to the Co-op despite concerns about the mutual's ability to complete the deal has inflamed political tensions this week, with Labour's close links with the Co-operative Bank highlighted by Conservatives.

In turn, senior Labour figures have accused ministers of failing to undertake sufficient due diligence on the Co-op Bank to ensure that it was in a sufficiently sound financial position to take on the Lloyds branches.

The Co-op has now been forced to seek a £1.5bn rescue deal for its banking arm, which is reliant on a £125m capital injection from a group of hedge funds. Investors will vote on the proposed deal during the next two weeks.

NBNK has repeatedly argued both that it offered a better financial deal to Lloyds than the Co-op and greater assurances that it would be able to execute an agreement.

In evidence provided to the Treasury Select Committee earlier this year, the acquisition vehicle also warned Lloyds that it believed the Co-op was in a worse financial position than had been publicly acknowledged and that the mutual would be forced to withdraw.

Senior City sources now believe that one of the motivations for favouring a Co-op deal with Lloyds was that the well-capitalised Verde network would help to ease the mutual's difficulties over IT systems, management inexperience and doubts about the robustness of its capital position.

The Verde branches are now being carved out of Lloyds under the TSB brand, with a stock market flotation expected to take place next year.

Sky News revealed last week that the former boss of RSA Insurance, Andy Haste, is being lined up to chair the new TSB public company.

In an interview with Sky News earlier on Friday, Lord Levene said NBNK had been told by its advisers that a bid by the Co-op was "not viable".

"What I did was… [to] take that report and give it to the chairman of Lloyds Bank who I knew very well and say to him, 'Look…I really think before you press the button on this you ought to read this report for yourself because I think you will see from this that the Co-op is not going to be the answer for you. Subsequently the Chairman… denied that he had ever seen that piece of paper."

Lloyds declined to comment.

A series of regulatory probes now awaits the Co-op and some of its former directors, with the FCA and PRA saying separately on Friday that they were already undertaking work to establish whether they should launch formal enforcement investigations.

A separate probe commissioned by the Treasury and undertaken by an as-yet unidentified figure from the world of banking or law will also take place.

In a statement on Friday afternoon, it said its inquiry would "cover the actions of relevant authorities (regulators and government) and the institution itself, including prudential issues, governance (including the appointment of senior staff) and acquisitions".

The Treasury's inquiry will not begin until after any PRA and FCA enforcement action has been concluded.

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Energy Bills: Ofgem Targets Power Operators

The energy regulator has moved to help cut household energy bills in future by rejecting business plans from five of the six companies that own and operate Britain's local electricity network.

The five firms, whose activities form below 20% of an annual electricity bill, were found by Ofgem to not offer enough in terms of value to consumers in their plans. 

The watchdog found that Western Power Distribution (WPD), which covers South Wales, the Midlands and the South West of England, was the only company that achieved eligibility to have its price controls agreed early.

It did not name the five firms which it said fell foul of its efforts to lower costs.

There are 14 regional distributors operating in the UK.

WPD's business plans, which cover the period from 1 April 2015 – 31 March 2023, included around £7bn of total expenditure, of which around £3bn was for investment to upgrade and maintain WPD's network. 

Ofgem said the agreement meant the distribution element of the electricity bill would be reduced for its customers by an average of 11.6% or around £11.30 in 2012/13 prices.

Hannah Nixon, Ofgem's senior partner for distribution, said: "We understand that energy costs are a big concern for consumers and we set a high target for demonstrating value for money.

"We are pleased that nearly all companies have pledged to cut bills, but we feel that most companies can go further in cutting their costs and expect to see further improvements when they resubmit their plans in March.

Regulation of the distribution sector operates differently to that which sells direct to households and manages billing.

Customers have to rely on regulation from Ofgem to limit charges from distributors as they operate on a regional monopoly basis rather than in competition with each other, as the main energy companies do.

Those firms - dominated by the so-called 'big six' - have been under fire over inflation-busting rises to bills announced ahead of winter.

Those that have raised prices have pledged to cut the increases back should the Government confirm it will take the cost of green levies out of bills and shift them to general taxation.

Labour has demanded greater intervention to cap bills - accusing ministers of standing idle amid a cost of living crisis for families as price rises continue to outpace wage increases.

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Former Co-op Chairman Released On Police Bail

Chancellor George Osborne has announced plans for an independent inquiry into the Co-operative Bank's near collapse, as its former chairman was released by police.

The review uses new powers under the Financial Services Act and follows calls from Prime Minister David Cameron for an inquiry into the bank's ailing finances and the decision to appoint Paul Flowers as chairman.

It will add to an investigation being considered by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), following the regulators' talks with Bank of England governor Mark Carney on Friday.

Mr Osborne announced the review

The Co-op faces a rescue which will see 50 branches close and investors including US hedge funds take control of 70% of the business.

The Treasury-led inquiry will look into mistakes made in the run-up to the Co-op Bank's woes and the £1.5bn black hole in its finances, dating back to at least 2008.

The Treasury said it will investigate actions of the regulators and government in relation to the issues at the bank.

It will also cover the Co-op's takeover of Britannia Building Society at the height of the banking crisis, as well as appointment procedures in light of the scandal surrounding Mr Flowers.

Since Mr Flowers stepped down in June, questions have been asked about his competence in the role.

The 63-year-old Methodist minister was arrested by West Yorkshire Police on Thursday night in Merseyside.

He has been held in connection with an "an ongoing drug supply investigation", police said.

Mr Flowers has been questioned all day by police, and was released on Friday evening.

Asked how Mr Flowers was feeling, his solicitor Andy Hollas said: "I think a rather ponderous frame of mind - I think anyone in his situation would be."

Mr Hollas added: "He's not necessarily guilty of anything, he's not been charged with anything."

Mr Flowers resigned as Co-op chairman in June

Mr Flowers was suspended by both the church and the Labour Party following newspaper allegations that he bought and used illegal drugs.

The Treasury's inquiry will not start until the outcome of criminal investigations into Mr Flowers, or it is clear proceedings will not be prejudiced.

As with the recent review into Royal Bank of Scotland, the probe will be independently chaired, which is seen as vital by the Treasury Select Committee because the role of the regulators will also come under scrutiny.

The FCA said it "fully agrees" the investigation should be led by an independent person.

The Co-op is already at the centre of a barrage of investigations, with the group being grilled by MPs on the Treasury Select Committee into the bank's failed Project Verde bid for 632 Lloyds Banking Group branches.

Sky News has learned that the former Bank of England governor, Lord King, warned of a "political desire" for the Co-op to buy the branches.

It also emerged earlier that the Co-op is seeking to recover £31,000 paid to Mr Flowers since he quit his £132,000-a-year post in June.

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Ex Co-op Bank Chairman Paul Flowers Arrested

Former Co-op bank chairman Paul Flowers has been arrested in connection with a drugs supply investigation, police have said.

West Yorkshire Police said officers arrested the 63-year-old in the Merseyside area on Thursday night and he is being questioned at a police station in West Yorkshire.

Mr Flowers, a Methodist minister, was suspended by both the church and the Labour party following claims that he bought and used illegal drugs including crystal meth, crack cocaine and ketamine.

He has also been engulfed in allegations about gay sex, questions over his expenses claims at a drug charity and drink-driving.

Mr Flowers being quizzed by MPs about his time at the bank

It also emerged he had resigned as a Labour councillor after adult material was discovered on his computer.

His arrest comes as the Co-op is seeking to recover £31,000 paid to him since he quit his £132,000-a-year post in June.

Mr Flowers, who led the Co-op Bank for three years, has been accused of incompetence after the bank found a £1.5bn black hole in its finances.

This followed the purchase of Britannia Building Society in 2009 and abortive attempts to take on hundreds of Lloyds Bank branches.

The bank now faces a rescue which will see 50 branches close and investors including US hedge funds take control of 70% of the business.

In a statement, it said: "When Paul Flowers relinquished his responsibilities in June, it was agreed, as per his contractual obligations, that his fees for the rest of his period of office would be paid.

"Following recent revelations, the board stopped all payments with immediate effect and no further payments will be made."

The Co-op is in serious trouble after a series of bad deals

Tory MP David Davis has said George Osborne and the Treasury had "serious questions to answer" about the oversight of the bank.

"There are really serious questions to answer about what they were all doing," David Davis told the Financial Times.

Issues over the bank's operations were raised by a rival at the time of the aborted takeover bid of Lloyds branches.

"These problems were apparent to a rival and would have been - with a bit of work - to anyone else," Mr Davis said.

Labour - which accuses Prime Minister David Cameron of seeking to "smear" the party over its relationship with the Co-op - seized on the comments in a bid to move the spotlight on to the Conservatives.

Leader Ed Miliband insists the party acted with the "utmost integrity" in its dealings with Mr Flowers and suspended him when the allegations about his private life emerged.

Shadow chancellor Ed Balls, who received a £50,000 donation to his office from the Co-operative Group, said he had "nothing to hide".

Labout has come under fire over its dealings with the Co-op

He told Sky News political editor Adam Boulton that he had never had a phone call or a meeting with Mr Flowers and stressed that the donation came from the Co-op Group and not the Co-op Bank.

Mr Cameron has announced an inquiry into the bank's ailing finances and the decision to appoint Mr Flowers - with details expected to be announced within days.

It emerged on Thursday that Mr Flowers was convicted of drink-driving in 1990 and for gross indecency in a toilet with a man in 1981.

In 2011, he resigned from Bradford council after being caught with pornography on his council laptop and it has been alleged he falsely claimed £75,000 from a drugs charity when he was chairman of trustees in 2004.

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Samsung Told To Pay Apple $290M In Damages

A US jury awarded Apple Inc about $290m in a damages retrial against Samsung Electronics Co Ltd, restoring a large chunk of a historic verdict the iPhone maker won last year.

After a week-long trial, the jury deliberated for nearly two days before reaching a decision on Thursday in a San Jose, California, federal court.

Apple had requested $379.8m, while Samsung argued that it should have to pay $52.7m.

Apple and Samsung have been fighting in the courts for over two years. Apple was awarded over $1bn last year after it convinced a jury that Samsung copied various iPhone features - like using fingers to pinch and zoom on the screen - along with design touches like the phone's flat, black glass screen.

Apple called its marketing chief Phil Schiller to testify during the trial. Samsung did not call any senior executives, a fact hammered on by Apple attorneys during closing argument.

Juror Barry Goldman-Hall, 60, said the six-woman, two-man jury discussed the disparity.

"We felt like we had way more information from Apple and we were left wondering why we hadn't gotten other information from Samsung," said Goldman-Hall.

The case is likely to drag on as Samsung appeals both verdicts, said Brian Love, a professor at Santa Clara Law in Silicon Valley.

"Litigation between the parties is far from over, and there is no end in sight," Prof Love said.

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Energy: Regulator Targets Power Operators

The energy regulator has moved to help cut household energy bills by rejecting business plans from five of the six companies that own and operate Britain's local electricity network.

The firms, whose activities form part of the costs which are added to bills, were found by Ofgem to have offered not enough in terms of value to consumers in their plans. 

The watchdog found that Western Power Distribution (WPD), which covers south Wales, the Midlands and the South West of England, was the only company that achieved eligibility to have its price controls agreed early.

WPD's business plans, which cover the period from 1 April 2015 – 31 March 2023, included around £7bn of total expenditure of which around £3bn was for investment to upgrade and maintain WPD's network. 

Ofgem said the distribution element of the electricity bill, which accounts for 19% of the average annual electricity bill, would be reduced for its customers by an average of 11.6% or around £11.30 in 2012/13 prices. 

More follows...

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Tagging Overcharges: G4S And Serco Apologise

The head of security giant G4S, which overcharged on contracts for tagging criminals, has told MPs the company failed to "tell the difference between right and wrong".

Appearing before MPs at Westminster, G4S chief executive Ashley Almanza apologised to the taxpayer for the firm's handling of its electronic monitoring contracts.

And Serco chairman Alistair Lyons told the Commons Public Accounts Committee it was "ethically wrong" that his company also overcharged the Ministry of Justice.

He admitted that since the disclosures about the tagging contracts surfaced in July, Serco has lost a third of its value on the FTSE 100 Index - equal to £1.3bn.

Mr Almanza was less specific, but said: "It's hard to attribute but there's undoubtedly been a loss of value in the company."

The Serious Fraud Office (SFO) has opened a criminal investigation after it emerged G4S and Serco overcharged the Government for tagging offenders, some of whom were found to be dead, back in prison or overseas.

Mr Almanza said: "It was a judgment that was flawed. It was just a flawed judgment. I don't think we did correctly tell the difference between right and wrong. We got it wrong."

Alistair Lyons told MPs Serco had lost a third of its value

He added: "I apologise to the Secretary of State and I should apologise to this committee and the taxpayer on behalf of our company. We didn't have the systems in place that we needed.

"Too much was left to a small number of individuals and we didn't have appropriate checks and balances in place and that is changing now as we speak."

Mr Lyons said: "Managers within our UK division may have genuinely interpreted the contract that way but that's not the point, as far as we're concerned. It was never right that we should bill where we were not doing work in respect of that billing.

"That was wrong. It was ethically wrong and for us it's one of the signs that say we need to have an attitudinal change within our business."

Committee chair Margaret Hodge said: "If you had never been caught on some of these people who are out of jail, dead or whatever, you would have carried on charging to the year 3000."

Mr Lyons replied: "It was totally wrong. As far as we're concerned, it may have been what a contractual interpretation, what the lawyers might argue, it still wasn't right."

The Government has rejected a £24 million offer from G4S to settle the overcharging scandal with officials vowing to "pursue all possible avenues" to recoup more taxpayers' cash.

Mr Lyons and Mr Almanza said no evidence of overcharging on other contracts held by Serco and G4S had been found.

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Barclays Boss To Head Major Business Charity

By Mark Kleinman, City Editor

The chief executive of Barclays is being lined up take the helm of the charity Business in the Community (BitC), less than 18 months after the bank became embroiled in a series of reputational crises.

Sky News understands that Antony Jenkins is to become the next chairman of BitC, which is a member of The Prince's Charities, the group of not-for-profit organisations of which Prince Charles is the president.

Mr Jenkins' appointment has yet to be finalised but is likely to be imminently, one insider said on Wednesday.

If he is confirmed to the post, it would see him replacing Mark Price, the boss of Waitrose and deputy chairman of the John Lewis Partnership, who is due to step down in January.

Insiders said on Wednesday that they expected Mr Jenkins to join the charity's board in the spring of next year, and take over the chairmanship in January 2015.

The arrival of Mr Jenkins at BitC would underpin his credentials as a corporate leader determined to hone his own ethical credentials as well as those of Barclays and the broader business community.

Since replacing Bob Diamond as the bank's chief executive last year, Mr Jenkins has sought to begin rebuilding its reputation, announcing a string of initiatives reflecting his attempt to establish it as "the go-to bank".

He has, however, been confronted with a number of ongoing regulatory probes into past misdeeds, including the circumstances of its bailout by Middle Eastern shareholders in 2008 and a widening investigation into potential manipulation of foreign exchange markets by traders working for Barclays and other banks.

The news of Mr Jenkins' prospective appointment at BitC also comes as the unfolding scandal at the Co-operative Bank threatens to inflict further damage on the industry's battered image.

Political rows over energy provision, payday lending and fraudulent claims by public sector outsourcers have deepened the sense of mistrust between the public and the business community.

BitC is the largest business-led charity of its kind in the UK, engaging in a broad range of education and training projects aimed at deepening companies' commitment to corporate social responsibility.

It has 850 members, who collectively employ more than 16m people, according to BitC's website.

Among its initiatives are Ban the Box, which encourages companies to give job applicants a second chance by not asking about previous criminal convictions; and Workwell, a programme focused on improving understanding of workplace health.

Mr Jenkins' appointment has been backed unanimously by the BitC board although some observers may question whether the charity will serve as a convenient platform for him to try to detoxify the Barclays brand.

Last week, the bank axed 1700 jobs across its UK branch networks as customers increasingly shift to using digital services, with thousands more likely to follow in the coming years.

Barclays already has an association with BitC as one of its corporate partners, while John Union, the head of the bank's Welsh operations, is a member of the charity's board.

Among the other directors of BitC are John Cridland, director general of the CBI; Sir Richard Lambert, his predecessor; Chris Hyman, the departing chief executive of Serco, the troubled outsourcing group; and Steve Holliday, chief executive of National Grid.

Sir Richard has also taken on a role as the chair of a new panel aimed at devising a new professional standards body for the banking industry.

Among the other senior businesspeople who have occupied the BitC chairmanship are Sir Stuart Rose, former chairman of Marks & Spencer, and Sir Mike Rake, who chairs BT Group and is the CBI's current president.

Barclays and BitC both declined to comment on Wednesday.

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Stocks Stumble On Fed Stimulus Slowdown Plan

Stock markets retreated after confirmation from the US Federal Reserve that it is actively considering a slowdown of its massive bond purchase programme.

Members of the US central bank, according to minutes of their last meeting, agreed that they would likely start reducing the £85bn monthly stimulus if the US job market improved further.

They also weighed the possibility of slowing the purchases even without clear evidence of a strengthening in hiring,

The Fed's bond purchases have been intended to keep long-term borrowing rates low to spur spending and growth but the flood of cheap money has also stoked stock market values, seeing many world indices including the Dow Jones reach record highs.

The minutes also showed that members wrestled with how to assure investors that even after they cut back on the bond buys, the Fed still intends to keep its keep short-term rate near record lows.

At the meeting, members made no changes in interest rate policy but many wanted to better communicate to the public its plans for both slowing its bond purchases and keeping borrowing rates low to encourage spending.

The discussion suggested some members were worried that investors could mistakenly assume a slowdown in bond purchases, which have kept long-term rates low, will be followed by an increase in short-term interest rates.

Stocks fell Wednesday after the minutes indicated the Fed might be closer to scaling back its stimulus.

The Dow closed down 66 points while most Asian markets fell overnight - with weak Chinese manufacturing figures also weighing on sentiment.

There was also expected to be further weakness in Europe on Thursday.

Fed members expect incoming data to show improvement in the job market and would "thus warrant trimming the pace of purchases in coming months," the minutes said but did not specify when that first reduction in bond purchases might occur.

Some participants suggested that at some stage it might be appropriate to begin trimming the bond purchases "before an unambiguous further improvement" in the outlook for the job market. But other Fed officials objected that such a suggestion was premature and wanted more time to assess the impact of the bond purchases.

The Fed meets again in December, but most economists don't expect any changes in the bond programme until March.

That would be Janet Yellen's first meeting as Fed chairman - should the Senate approve her nomination.

Ben Bernanke, the current Fed chairman, will step down in January when his term ends.

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Poor Language Skills 'Hampering UK Economy'

By James Matthews, Sky News Correspondent

Britain's inability to speak "important" foreign languages could jeopardise future prosperity and global standing, according to a new report.

The British Council has said the UK has an alarming shortage of people who are able to speak what it regards as the 10 most important languages.

They are Spanish, Arabic, French, Mandarin Chinese, German, Portuguese, Italian, Russian, Turkish and Japanese.

The Languages For The Future report identifies these languages as vital to the UK over the next 20 years on economic, geopolitical, cultural and educational grounds.

John Worne, director of strategy at the British Council, told Sky News: "The problem isn't that we're teaching the wrong languages, because the most widely taught languages like French, Spanish and German all feature in our top 10.

"But the UK needs more people to take up the opportunity to learn, and crucially, get using these languages - along with new ones like Arabic, Chinese and Japanese.

"If we don't act to tackle this shortfall, we'll lose out both economically and culturally.

"Schools have their job to do, but it's also a problem of complacency, confidence and culture - which policymakers, businesses, parents and everyone else in the UK can help to fix.

"Languages aren't just an academic issue - they are a practical route to opportunity for the UK in business, culture and all our lives."

A YouGov poll commissioned by the British Council showed that three quarters of British people cannot speak the "important" languages well enough to hold a conversation.

French is spoken by 15% of people, German by 6%, Spanish by 4% and Italian by 2%.

Arabic, Mandarin, Russian or Japanese are each only spoken by 1%, while less than 1% of people in the UK speak Portuguese or Turkish.

The report calls for children to be taught a broader range of languages and for the subjects to be given the same priority as maths and sciences.

It also states that businesses should invest in language training for staff and that everyone should learn at least the basics of those languages deemed so important to the country's future.

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Flowers Quit Council Over 'Adult' Content

The former chairman of the Co-operative Bank resigned as a councillor in Bradford two years ago after "inappropriate" content was found on his computer, the council has revealed.

Reverend Paul Flowers, a Methodist minister who chaired the Co-operative Bank for three years from 2010, is alleged to have bought illegal drugs as part of a Mail on Sunday sting.

He left the city council in September 2011, having served on it for almost a decade, citing personal reasons and increased responsibilities at the Co-operative Banking Group.

But a spokesman for Bradford Council said: "Inappropriate but not illegal adult content was found on a council computer handed in by Councillor Flowers for servicing. This was put to him and he resigned immediately."

Reverend Flowers, who has already apologised for doing things that were "stupid and wrong" in relation to the drugs claims - but without elaborating - has been suspended from the Methodist Church and by the Labour Party.

Len Wardle joined the Co-op's board in 2002. Pic: Co-op

The substances said to be at the centre of the claims include cocaine and ketamine - a horse tranquilliser - used as a party drug.

The allegations against Reverend Flowers, which are the subject of a police inquiry, exacerbated pressure on Britain's biggest mutual which is having to explain the background to the bank's financial difficulties - largely a result of its merger with Britannia in 2009.

The Co-operative Group's long-standing chairman Len Wardle announced on Tuesday he was resigning with immediate effect after he admitted "serious questions" were raised by the drugs scandal.

Mr Wardle, who has held the position since 2007, announced last month that he was due to leave next May but he said it was now right for him to go straight away, having led the board that appointed Reverend Flowers.

Mr Wardle said in a statement: "The recent revelations about the behaviour of Paul Flowers, the former Chair of The Co-operative Bank, have raised a number of serious questions for both the Bank and the Group.

Paul Flowers is being investigated following the Mail On Sunday's claims

"I led the Board that appointed Paul Flowers to lead the Bank Board and under those circumstances I feel that it is right that I step down now, ahead of my planned retirement in May next year.

"I have already made it clear that I believe the time is right for real change in our operations and our governance and the Board recently started a detailed review of our democracy.

"I hope that the Group now takes the chance to put in place a new democratic structure so we can modernise in the interests of all our members."

The Co-op confirmed Mr Wardle would be replaced by Ursula Lidbetter, currently Group deputy chair and chief executive of the Lincolnshire Co-operative Society.

Mr Wardle's decision was announced hours after The Co-op Group launched a fact-finding probe and a root-and-branch review of its structure after "serious and wide-ranging" allegations about Reverend Flowers, who resigned in June after a £1.5bn black hole was discovered in its finances.

The Co-op Bank discovered a massive gap in its finances following the purchase of Britannia Building Society in 2009 and abortive attempts to take on hundreds of Lloyds branches.

It faces a rescue which will see 50 branches close and investors including US hedge funds take control of 70% of the business, leaving the wider Co-operative Group with just 30% - described as a "tragedy" by former group chief executive Peter Marks.

The former Co-op bank chief executive who steered through its ill-fated merger with Britannia told MPs today it was years before anyone believed it was a "daft" idea.

Tory party chairman Grant Shapps has sent an open letter to the Labour Party, asking a series of questions about the scandal, including whether Ed Balls was aware of the council resignation before accepting a £50,000 donation from Reverend Flowers to his private office.

A Labour source described the letter as a "ridiculous political stunt", adding: "Ed Miliband and the Labour leadership have been as shocked as anyone at these recent revelations which is why we suspended Paul Flowers from the Labour party."

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JPMorgan Agrees $13bn Mortgage Complaint Deal

JPMorgan Chase has agreed to pay $13bn (£8bn) to settle complaints over mortgages and mortgage securities, US officials have said.

The deal includes $9bn in payments to authorities and $4bn which will go to people affected by the bank's actions, New York State Attorney General Eric Schneiderman said.

The US government called the settlement the largest in the country's history.

It resolves a series of complaints against the bank for mis-stating the quality of mortgages and mortgage securities it sold before the financial crisis, and complaints it mishandled the mortgages of millions of homeowners.

Mr Schneiderman said: "This historic deal, which will bring long-overdue relief to homeowners around the country and across New York, is exactly what our working group was created to do.

"We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten.

"And as a result we've won a major victory today in the fight to hold those who caused the financial crisis accountable."

Chief executive of the bank Jamie Dimon

JPMorgan has said most of its mortgage-backed securities came from Bear Stearns Cos and Washington Mutual Inc, troubled companies that JPMorgan acquired in 2008.

As part of $6bn it will give to investors, $4bn will resolve government claims that JPMorgan misled mortgage finance giants Fannie Mae and Freddie Mac about risky mortgage securities the bank sold them before the housing market crashed.

That part of the deal was announced on October 25.

Fannie and Freddie were bailed out by the government during the crisis and are under federal control.

The $13bn settlement amount is only about half of JPMorgan's record 2012 net income of $21.3bn, or $5.20 a share, which made it one of the most profitable US banks last year.

Mounting legal costs from government proceedings pushed JPMorgan to a rare loss in this year's third quarter, the first under chief executive Jamie Dimon's leadership.

The bank reported on October 11 that it set aside $9.2bn in the July to September quarter to cover the string of legal cases against it. 

It faces at least nine other government probes, covering everything from its hiring practices in China to whether it manipulated the Libor benchmark interest rate.

JPMorgan said it has placed $23bn in reserve to cover potential legal costs.

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Npower Tops List Of Energy Customer Complaints

Npower has topped a customer complaints list leading an energy watchdog to describe its performance as "unacceptable".

Latest research compiled by Consumer Futures, which represents consumers in regulated markets, said npower had 202.5 complaints per 100,000.

This was compared with 38.3 per 100,000 for SSE, the lowest of the main energy providers.

Audrey Gallacher, director of energy at Consumer Focus, said: "The company is implementing system changes that inevitably caused disruption to customers, however its complaints performance is unacceptable and the company must take further steps to tackle this.

"Energy companies have repeatedly said they want to rebuild consumer trust.

"Along with price, good service is important to customers. People want to know the relative performance on complaint handling to help them make informed choices when deciding whether to switch.

"Customer satisfaction with how complaints are handled is low across a whole range of industries and the same problems are seen over and over again."

The figures were taken from the period April to June 2013 and do not include any complaints made in the wake of recent price hike announcements.

Public confidence in energy suppliers has been dealt a major blow since five of the Big Six energy firms announced that charges would rise by an average of around 9%.

Citizens Advice chief executive Gillian Guy said: "Price hikes of 36% over the last three years, coupled with poor customer service, has compounded the lack of trust in energy firms as households struggle to afford to have a warm home."

A spokesman for Energy UK, the trade association for the energy industry, said: "The vast majority of energy customers are happy with the service they get with only around one in every 1,400 customers likely to need to contact their supplier about a problem.

"Most complaints only need a phone call to sort out - around four out of five queries are resolved by the end of the next working day - but, if the problem cannot be resolved, the energy ombudsman is there to ensure problems get fixed.

"Energy companies take their relationship with customers extremely seriously and work hard to improve customer service."

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easyJet Special Dividend As Profits Rise 51%

easyJet is planning to return £175m to shareholders in a special dividend after full year profits rose 51% to £478m - a record for the company.

The no-frills airline said in addition to the one-off payment of 44.1p per share - subject to shareholder approval - it would also pay a regular ordinary dividend of 33.5p per share worth £133m.

easyJet said it ended its financial year to September 30 with £1.24bn in cash - an increase of £354m on the previous 12 months - and as a result the board was recommending the extra payout.

More follows...

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Supermarkets Taken To Task Over Offers

By Poppy Trowbridge, Business And Economics Correspondent

Some of Britain's biggest supermarkets have been accused of running so-called special offers that often see customers "paying over the odds".

Consumer group Which? analysed more than 70,000 grocery prices and found examples of what they call misleading multibuys and dodgy discounts.

Richard Lloyd, executive director, told Sky News: "People are at best paying what they would have done, or often we have found paying over the odds, paying extra when they think they are getting a discount. That can't be fair.

"These special offers simply aren't special at all. That is why we need to see the rules change to force the supermarkets to play fair."

Rising food prices are one of the top worries for consumers as inflation has outpaced average wage growth for about five years.

Which? wants the Government to make the rules for special offers simpler, clearer and stricter.

The consumer group says if these changes are not made swiftly, it will consider using its formal legal powers to ensure the practice is tackled.

In the meantime shoppers should look carefully at the special offers, Mr Lloyd added.

"Make sure that you are not getting misled into buying something that you think is a good deal when that is just not the case."

The British Retail Consortium, which represents the supermarket industry, said in a statement: "Across the tens of thousands of promotions available every day, regrettably, occasional errors do slip through.

"Retailers work very quickly to rectify these mistakes whenever they are found."

Both Asda and Sainsbury also issued statements apologising for what they called pricing errors.

Sainsbury's said: "We are absolutely committed to fair and transparent promotions and carry out regular audits and thorough training on this."

Asda's statement said: "We take pricing seriously, and we've recently employed a new team within the business that looks at all aspects of our pricing process and pricing practices in store and online.

"Sometimes mistakes can happen, but we would never deliberately mislead our customers ... "

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Thomas Cook Offloads Foreign Exchange Unit

By Mark Kleinman, City Editor

The chief executive of Thomas Cook will on Monday continue her reshaping of the revitalised tour operator by unveiling the sale of its foreign currency division.

Sky News has learnt that Harriet Green struck a deal on Friday to sell Thomas Cook Corporate Foreign Exchange (CFX) to Moneycorp, a rival operator owned by funds affiliated to the state-backed Royal Bank of Scotland (RBS).

A statement is expected to be made to the London Stock Exchange on Monday to confirm the transaction.

The deal is understood to value the unit at only about £5m but is expected to be viewed by the City as a further step towards re-modeling Thomas Cook under the stewardship of Ms Green, who took over as chief executive last year.

Ms Green has presided over a sharp rise in the company's share price after tapping investors for more than £400m in new equity earlier this year and announcing a plan to refocus Thomas Cook on fewer core brands and higher-margin activities.

The fate of one of the best-known names in the UK holiday sector had been hanging in the balance when Ms Green contacted Thomas Cook's chairman, Frank Meysmann, to urge him to consider for the vacant chief executive's post.

Since taking over, she has sold a string of non-core assets, including its business in Egypt and Lebanon last month for just under £10m.

At a trading update in September, the company said it was hopeful of a positive end to its financial year, with full-year results to be published later this month.

"While we expect geopolitical events may impact destination choice, we are, following the improved integration of our business lines, offering customers a wider range of new routes and attractive vacations which we believe will provide a sound basis for continued performance into the new financial year," Thomas Cook said.

"This combined with the continued delivery of our new product range and our cost-out and profit improvement plan, give us confidence of achieving our targets and successfully implementing our strategy for profitable growth."

Thomas Cook declined to comment while Moneycorp could not be reached on Sunday.

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Banks Urged To End Expensive Phone Charges

High street banks, credit card companies and insurers are being urged to cut high-rate customer lines after a study found almost three quarters are costly 084 or 087 numbers.

Which? found that 177 out of 242 customer or complaints lines for financial services such as current accounts, loans and credit cards - or 73% - were premium-rate numbers.

The companies included leading high street banks and building societies such as HSBC, Lloyds Bank, Nationwide and TSB Bank, credit card providers American Express, Capital One and Tesco Bank and insurers Aviva, Churchill and Direct Line.

The watchdog found that four in 10 people (39%) prefer to call financial firms with an inquiry and nearly a third (31%) would rather complain by phone.

However, nearly all of the credit card providers studied (95%) use 084 or 087 numbers for complaints or customer service help lines, and 89% of current account providers use them for complaints or customer service help lines.

Existing customers are also being charged more than new ones, with free 0800 numbers used for 52% of sales or new customer lines compared with just 26% for existing customers and 21% for complaints.

Populus surveyed 2,070 adults online between August 30 and September 1.

Barclays and Barclaycard have announced they will offer a freephone or basic rate number for all customer help lines, while NatWest and RBS are also dropping costly calls.

Which? has called on other providers to follow their example.

The EU Consumer Rights Directive ban on the use of expensive numbers for customer help lines comes into force next year, but financial firms are excluded.

Which? is calling on the Financial Conduct Authority (FCA) to clarify existing rules to stop financial services companies from using high rate numbers on complaints lines, and change the rules so they also cover customer help lines.

The watchdog's executive director Richard Lloyd said: "Millions of us prefer to deal with our bank on the phone, yet we are expected to cough up for a costly call when we do.

"It's not right that financial companies are being let off the hook."

Ashok Vaswani, chief executive of Barclays Retail and Business Banking, said: "For many customers the telephone is the most convenient way in which to contact us, so it's right that we have taken this step to ensure that no customer need dial a premium or high rate number simply to speak to us."

A British Bankers' Association spokesman said: "We expect to see many banks changing to use local numbers for complaints in the near future and it is good to see that some banks have already committed to doing so."

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Top Directors' Pay Up 14% In Past Year

Pay packets for directors at Britain's biggest listed companies have grown 14% in the past year - more than six times the increase in overall average earnings.

The disparity has been driven by a huge rise in share-based long-term incentive payments, according to a new report.

A study by pay analysts IDS found that basic pay rises for directors of FTSE 100 firms were "relatively restrained" at 4%, while annual bonuses were 8.8% lower.

But the directors benefited from long-term incentive plans (LTIP), which jumped by 58%, taking the median total from £764,000 to over £1.2m, the study revealed.

Steve Tatton, of IDS, said: "These divergent pay trends highlight the complex make-up of boardroom remuneration, illustrating that while one part of a director's pay package may go down, another part may go up.

"With nearly two-thirds of FTSE directors benefiting from an LTIP award in the latest year, the higher share-based payouts clearly made up for any ground lost in lower annual bonuses."

LTIPs are created to offer incentives over an extended period, usually over three years.

They are normally given as shares and are linked to shareholder returns.

According to a study by Maifest and MM&K, FTSE 100 chief executive total pay sits at 120 times the average earnings of their employees.

This has risen from 47 times the rate in 1998, but down from a pre-crash peak of 151 times the average worker pay in 2007.

TUC general secretary Frances O'Grady said: "Britain's top bosses are back to their old tricks as their pay is growing 20 times faster than the average worker.

"It's one thing replacing bonuses with long-term incentive plans, but FTSE 100 companies are simply exploiting this change to make their fat cats even fatter.

"The time has come for legislation to put ordinary workers on the pay committees of companies. This is the only way to bring some sanity to the way in which directors are paid."

A significant portion of FTSE 100 directors were given large share blocks when equity prices were much lower.

With rising share prices the top directors are now seeing windfall gains.

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JPMorgan Agrees $4.5bn Mortgage Payout Deal

US banking giant JPMorgan Chase has reached a deal to pay $4.5bn (£2.79bn) to investors for losses on mortgage securities sold before the financial crisis.

A total of 21 institutional investors are to receive the money.

JPMorgan said the deal would settle investors' claims with the bank and Bear Stearns, which it took over at the outset of the crisis.

The agreement comes after claims it misrepresented the asset quality of 330 residential mortgage-backed securities (RMBS) portfolios the investors were sold.

The bank said the settlement is "another important step in JPMorgan's efforts to resolve legacy-related RMBS matters".

"The firm believes it is appropriately reserved for this and any remaining RMBS litigation matters."

The deal follows JPMorgan's agreement to pay $5.1bn (£3.16bn) to government-controlled mortgage giants Fannie Mae and Freddie Mac over low-quality mortgage bonds it sold them.

And it also comes after the institutional investors struck a deal for Bank of America to pay $8.5bn (£5.27bn) for questionable deals sold with exaggerated quality ratings.

But like the Bank of America deal, the new JPMorgan agreement still needs to be approved by trustees of the mortgage securities in the case, as well as a court.

The trustees have until January 15 to accept the deal, but the offer could be extended by another 60 days if necessary.

In a statement the 21 investors said they agreed to the deal and are asking the trustees of the bond issues to accept it.

If accepted, the payout will benefit all investors claiming losses on the bonds, and not just the 21 institutions, they said.

"The Institutional Investors will participate in the settlement, like every other investor, based on the terms of the payment waterfall," they said in a statement.

The agreement would settle the investors' claims against RMBS sold by JPMorgan itself and Bear Stearns, but not by Washington Mutual bank, which JPMorgan also took over during the crisis.

JPMorgan has maintained that it took on the assets of Washington Mutual only after the bank had collapsed into the government's hands in 2008, and so it was not liable for its misdeeds.

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Crunch Time As Biscuit-Maker Seals £350m Sale

By Mark Kleinman, City Editor

The maker of Jammie Dodgers and Wagon Wheels is finalising an agreement to sell itself this weekend to a Canadian pension fund for around £350m.

Sky News understands that Burton's Biscuits is expected to announce on Saturday that it is being taken over by a major financial investor, with an arm of the Ontario Teachers' Pension Plan in pole position to land the deal.

The sale has not yet been completed, and sources close to the talks said it remained possible that a rival bidder could yet make an improved last-minute offer.

Three other firms - Clayton Dubilier & Rice, Apax Partners and Warburg Pincus, which is an investor in Premier Foods, the UK's biggest branded foods producer - also tabled final offers for Burton's on Thursday.

Ontario Teachers has become a voracious acquirer of British companies in recent years, taking over Camelot, the National Lottery operator, and Busy Bees, the nursery chain.

If it completes the Burton's deal, it will look to expand the business overseas and consider further acquisitions.

A sale of Burton's will entail a change of ownership for another portfolio of prominent UK food brands following the sale several months ago of the snacks division of United Biscuits (UB), which included Hula Hoops and KP Skips among its products.

Burton's is Britain's second-largest biscuits manufacturer by sales, behind UB, which is also owned by two private equity groups, Blackstone and PAI Partners.

As well as Wagon Wheels, Burton's produces Cadbury Biscuits, Lyon's and Maryland cookies.

Based in St Albans, Hertfordshire, Burton's traces its roots back to the mid-1800s when it was founded by George Burton.

It employs more than 2,200 people around the UK in three manufacturing facilities in Llantarnam, Edinburgh and Blackpool, a chocolate refinery in Moreton and a central distribution hub in Liverpool.

Burton's is one of a sizeable number of mid-sized British companies which has been through several phases of private equity ownership.

In 2009, Apollo and CIBC, the Canadian bank, seized control of the company after Duke Street Capital, its previous owner, was forced to surrender control to the biscuit-maker's lenders.

Another private equity group, HM Capital, had bought the company in 2000 from Associated British Foods, owner of the Primark retail chain.

The auction of Burton's will pre-empt that of UB, which is expected to be put up for sale in the next couple of years.

Ontario Teachers is now likely to draw up plans to bid for part or all of UB.

UB, which now consists solely of a biscuits business, owns the McVitie's brand, which includes products such as Jaffa Cakes and Penguin.

Spokesmen for Burton's and Ontario Teachers declined to comment.

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Clegg Calls For New Tax Cut To Help Millions

Deputy Prime Minister Nick Clegg is calling on his coalition partners to raise the income tax threshold for a fifth time so the Government can "reward" voters for years of austerity.

The Liberal Democrat leader wants Chancellor George Osborne to take advantage of the improving economy and raise the threshold at which people start paying income tax to at least £10,500 by the time of the general election in May 2015, aides have said.

The cut would be worth £100 a year to 24 million ordinary rate taxpayers while taking around half a million people out of income tax altogether.

The Lib Dems have already seen the coalition achieve their manifesto commitment to raise the personal allowance to £10,000 - which was finally reached in the last Budget in March.

Mr Clegg is now keen to be able to claim the political credit for a further advance in what he regards as his "signature tune" policy.

He will write to party activists next week declaring his intention to fight for a "workers' bonus" to reward voters for the sacrifices they have made during the years of austerity.

The move, expected to cost the Treasury £1bn, is likely to infuriate the Tories, who believe they should take just as much credit.

Lib Dems however pointed out that in the televised debates before the last general election, Mr Cameron argued that raising the personal allowance to £10,000 would not be possible.

A source close to Mr Clegg said: "Our polling shows that raising the tax allowance is both strongly associated with the Lib Dems and popular. We know that we are on to a vote winner here.

"The Tories once said this policy wasn't affordable but now they like to claim credit for it. Will they now join the Lib Dems in going further and faster?"

For Labour, shadow treasury chief secretary Chris Leslie dismissed the call, saying the coalition's changes had left working families worse off overall.

"Working people facing a cost-of-living crisis need help right now, but Nick Clegg's Government has instead prioritised a huge tax cut for those earning over £150,000," he said.

"When it comes to people on middle and low incomes, the Government is giving with one hand but taking away much more with the other.

"The Lib Dems need to explain how their proposal would be paid for and why they refuse to back Labour's plan to freeze energy bills and reform the market."

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