OPPOSITION Tory Cllrs. at Warrington Borough Council have raised further concerns over council investments after a near 50 per cent reduction in the value of shares in Redwood Bank.
At the meeting of Warrington’s Audit and Corporate Governance Committee on Thursday night, it was discovered that the Labour-led Council is now in the position of having to *write down approximately 50% of its current investment in Redwood Bank.
The revelation came, following questioning from opposition Conservative Councillors, that the investment, standing at £32M needs to be impaired by a huge £15M – £16M.
This latest blow is in addition to the current difficulties affecting one of the council’s other high-profile investments Together Energy, which is understood to be on the brink of going into administration.
Cllr. Ken Critchley, Conservative finance spokesperson, said: “The Conservative Group have been consistent in our challenging of the investment the Council made in Redwood Bank.
“We have expressed our concerns regarding the apparent disproportionate investment made by the council compared to the other shareholders, let’s not forget in the original investment the council paid £30 million for one-third of the shares and the other investors paid £5 million for 2/3 of the shares in Redwood Bank’s holding company Redwood Financial Partners Ltd.
“Now we find that the Labour-led Council are in the position where they are having to write down 50% of their current investment.
“Combined with the Together Energy debacle this raises even more serious concerns regarding the Council’s approach to investment.
“The quality of decision making, the due diligence and the effectiveness of the governance of investments are all even more keenly under the spotlight.
“The investment in Redwood Bank is costing the residents of Warrington £750K in interest alone each year and now it is worth half of what we were told it was worth. This is a matter of serious concern for every resident of Warrington.“
Councillor Mark Jervis (Con) Voiced further concerns saying: “In the light of these recent troubling developments, it is a real concern that the Labour administration is continuing its practice of not providing the Audit and Corporate Governance Committee with key information to assist its review and scrutiny role.
“Also, the Committee is unable to form a view on the effectiveness or otherwise of the Council’s Due Diligence processes in relation to the new investments and our Conservative Group is dismayed at the apparent ongoing woeful corporate governance of investments such as Together Energy.
Councillor Kath Buckley (Conservative Group Leader) added: “We have been consistent in our challenge to the high risk, high borrowing path the Labour-led Council has chosen to take the people of Warrington down.
“Now it looks as though some of these questionable investments are starting to unwind, the Labour leadership must be held to account for these investment failures.”
The council’s controlling Labour group has been contacted for a comment.
* A write down is an accounting transaction in which the value of an asset is reduced to match its current market value.
3 Comments
I suspect that this understates the magnitude of losses to date.
On the day we signed up – before the business had made any losses – WBC must surely have been down by more than half of its capital investment purely by virtue of paying so much per share.
In the years that Redwood Bank has been trading it has been loss-making. This isn’t unusual for a startup, and there’s a decent chance that the business will move into the black on its year on year trading. Over time, this could well mean a decent increase in the overall value of the company (actually, the company we invested in was the parent company RFPL, which owns 90% of Redwood Bank).
However . . . even if RFPL doubles in value, the value of our shareholding will be less than we paid. Significantly less. If the value of RFPL halves, our losses will be huge – but the private investors will still see a profit – that’s how unbalanced a deal this was.
The best possible outcome is that the company grows significantly in value and WBC is able to get its investment back. However, the Telegraph reported last year that Redwood Bank is up for sale / looking for new owners, so we might not get the chance to wait for that to happen.
If any of the town’s qualified accountants would care to weigh in on this and correct any of my observations I’d be happy for that to happen – it’s important to see clearly and to take professional advice in such matters.
Thank you for reporting on this, Gary. We’re all on the hook for this money in one way or another, because it’s public money – it all comes from taxes one way or another.
Meanwhile we are also paying for servicing the loans taken out to fund the poorly performing investments/debts; as well as paying for the advice of consultants. With not insignificant sums of money that could otherwise be more beneficially employed for some of the people of Warrington.
My thanks also to Gary for keeping us abreast of this matter.
Spot on Jim,
I’ve just sent the following email echoing your comments to all the Labour Councillors
So now we know. Bowing to the inevitable WBC is finally writing down Redwood’s valuation in its draft accounts. It was obvious in 2018 that valuing Redwood at cost when it was unprofitable and in negative equity was unsustainable. Last week’s Audit meeting revealed the scale of this debacle. The auditors have determined that £16m (50% of our investment and 60% of Redwood’s last equity valuation) must be written off.
Neither is this hindsight. It was obvious to me in 2018 when the huge discrepancy between the amounts paid for shares and the ownership of Redwood became apparent and it should come as no surprise to any of you. You were all warned and this could have been avoided. At the December 2018 council meeting I put a public question to the Leader, Cllr. Bowden, asking him if he would be prudent and delay the payment of the third £10m investment in the bank until the accounts had been approved. Had that suggestion not been rejected the council would not now be writing off £16m and saved thousands of pounds by not employing consultants to shore up Lynton’s Green’s complete misjudgment of Redwood’s valuation.
Moreover, retaining £10m would have given the council leverage to renegotiate the ownership of the bank. The focus of my objection to the auditors about the accounts is the highly skewed investment. WBC’s beneficial ownership of the bank was just 29.7% yet by 2019 we had contributed 87% of the capital. You don’t need an accounting degree when contemplating those two numbers to be in any doubt that this was a poor commercial decision. On top of the failures in governance the auditors identified in their report on the public objection to the 2017/18 accounts, holding back £10m was both an opportunity missed and a failure of management. The effect of this will now ripple through the years resulting in permanently smaller dividends and depriving WBC of a fairer return.
It’s clear there has been a complete breakdown in governance and holding officers and the Leader to account. Most of you have remained silent, preferring to sit on your hands. Common sense should have caused you to ask basic questions about this skewed investment. You don’t need to be a qualified accountant to do that, it just requires a mind willing to challenge group think.
Sadly you have all failed in this basic requirement of a councillor. You have failed to open your minds to the reality of this investment. You have failed to be curious. You have failed to hold your Leadership to account and those of you in Cabinet have failed to seek answers from officers.
Compounding the problem all along has been a failure to acknowledge and take steps to remedy this. You could have prevented this write down years ago. No one when asked, from Professor Broomhead downwards, has ever explained why this unbalanced investment was ever approved. You have spent years in denial. You’ve allowed Lynton Green to employ external professional firms (who knows at what cost), in a desperate attempt to put pressure on the auditors to change their mind about the valuation. Cabinet and the Chief Executive should have been on top of this and stopped Lynton Green wasting time and money and accepted the auditor’s valuation two years ago.
Throughout Chris Haggett and I have been denounced by councilors for daring to question the accounts. Your refrain all along, “it’s a mere ‘technical’ matter”. Well a £16m write-off is not a technicality. Hubris springs to mind.
The Leader of course has been completely dismissive all along, accusing me of having a bee in my bonnet and being a vexatious complainant with a malicious and politically motivated agenda.
Many others have over the years raised these and other concerns, yet we’ve all been faced with ridicule. Variously called keyboard warriors, stalkers and other derogatory epithets for daring to continue to publicise our concerns. A job which you should all have been doing. We’ve been accused of putting the council in an undeserved bad light. I’ve lost track of the number of times a council spokesman has passed it off as a ‘mere technicality’. Well clearly £16m is not some technicality.
Despite all the spin and commentary to the contrary no one has ever said Redwood may not be a success. This has all been about ensuring that the WBC accounts fairly represent the valuation of the investment. Redwood may in two or three years manage to recover all its past losses and be in a position to start paying dividends. The rub of course is that having contributed the vast majority of the capital WBC will only see 1/3 of each dividend and given the skewed investment it’s hard to see how we’ll receive any positive return until years after the bank starts to make a profit, unlike the private investors who will see returns well before we do. In the meantime this investment is costing ~£750k p.a. in interest on the borrowing.
If the bank goes public this year as is widely trailed then it’s by no means certain that we will see any return at all whilst the private shareholders, who have only invested £11m compared to our £32m will be sitting pretty.
Councillor “we would never ever make an unsafe investment”, “everyone in this room has the opportunity to make a comment”, “we challenge every question” Higgins tells us at the November Cabinet meeting that he’s very angry that these investments are questioned with ‘unfounded allegations’. Not so unfounded now to the tune of £16m.
Well Cllr Higgins, I too am angry. I’m angry that the Cabinet are never held to account, either by individual Cabinet members or the wider Labour Group. I’m angry because I’ve never ever seen anyone in Cabinet ask any critical question of either officers or about the reports before you. I’m angry that you have never challenged anything. I’m angry that the Cabinet is a mere rubber stamp for cosy agreements made outside of the public gaze. Despite your claims no one has ever said investments don’t go through due diligence. However due diligence is there to ensure investments are legal. Due diligence in Bristol didn’t stop Bristol Council losing a large sum with the failed Bristol Energy investment, due diligence has not prevented WBC having to write £16m off the Redwood investment and due diligence hasn’t prevented other LAs being put under special measures because of failing investments.
Despite many claims, no one knows for certain if this investment is legal. As Grant Thornton said in their report on the 2017/18 objection only the High Court could do that and GT decided not to seek a declaration on this from the Court for practical – not legal reasons.
It’s time for you all to learn lessons. Stop all the group think, stop all the passive confirmatory bias, stop being afraid to challenge officers and indeed your own Cabinet and apply common sense when determining these matters.