Council set to invest £30m in new bank

WARRINGTON Borough Council will invest £30 million in a new challenger bank, known as Redwood Bank, if executive board members give the go-ahead on Monday.
The council would have a 33 per cent share in the bank, which would have a regional head office in the borough and would be launched around July or August.
Its main aim would be to provide loans to SME’s – small and medium enterprises – in Warrington, the North West and nationally.
Redwood Bank would be a joint venture between the council and the owners of an established bank –  the main shareholder would be a major city financier who already owns a successful international bank,  according to Cllr Russ Bowden (pictured), lead member for corporation finance.
It would provide secured lending to SMEs in Warrington, Northern Powerhouse authorities and nationally.  But it would have a national presence so the council would not be able to direct that funding wouldl only go to Warrington businesses.
A report to be presented to the council’s executive board by Cllr Bowden, points out that one outcome of the economic situation since 2008 has been a reduction in the among money available for loans to SMEs.
He says a survey estimated that in 2014 a funding gap as high as £38bn had been holding back SMEs, and had actually cost the banks more than £1bn in potential lost revenue, as well as a substantial amount  of goodwill from frustrated businesses. The survey’s overall conclusion was that there is still a significant funding gap existing for SMEs in the UK.
Increasingly, local authorities were interested in creating their own banks. More than 70 per cent of council leaders were interested in playing a bigger role in local banking for the benefit of their own communities.
Numerous councils had started lending to SMEs and a bank set up by Cambridgeshire local government pension fund and a college of Cambridge University in 2012 reached profitability within 13 months and made a £4 million profit in 2014. In 2015 it made a pre-tax profit of £10.2 million.
This development was considered the most relevant and akin to the Redwood  business plan in which it was proposed Warrington should invest.
Council chiefs had been looking into the proposals since 2013 and the Warrington business community had been consulted and supported the idea
The council had already allocated money for the scheme, which would be invested in £10 million increments over a three year period.
Cllr Bowden said the council could appoint a director to the board of the new bank, but the preferred option was to accept observer status with clear terms of reference as to what the council would have at board meetings. This was because the council had no-one suitably qualified to act as a director – and it would also be a similar arrangement to that at Cambridge.
The council’s 33 per cent shareholding in the new bank would give it a shareholder veto.
*Acorn Global Investments, the majority shareholder in Redwood Bank, was established last year by property investor David  Rowland and his son Jonathan Rowland, who would be chairman of the new bank.