Tories call for urgent statement after £32m Redwood Bank investment valued at £6.7m

OPPOSITION Tories on Warrington Borough Council are calling for an “urgent statement” from deputy leader Cathy Mitchell after the council’s draft statutory accounts for 2022-23 showed a £32m investment in Redwood Bank was now valued at £6.7m.

The council recently published its draft statutory accounts for 2022-23 which are available for inspection in person at the Town Hall or online and electors may question the auditor or make an objection to the accounts before 30 June 2023.

In connection with the newly published accounts, members of the WBC Conservative Councillors Group are now calling for an urgent statement from the Council’s Labour Deputy Leader Cllr. Cathy Mitchell, to explain the latest fall in the valuation of one of the Council’s investments, Redwood Bank plc.

Warrington Borough Council has invested £32M in Redwood Bank’s ordinary shares over recent years but the latest valuation shows a new valuation low for the Council’s investment at only £6.7M.

Conservative finance spokesperson Councillor Ken Critchley commented:“Let’s remember the Labour leadership originally paid £30M for one third of the ordinary shares and other investors originally paid £5M for two thirds of the shares. Those other investors are potentially sitting on profits whilst this latest valuation generates a huge prospective loss of public money for Warrington.
“This is a damning example of the council’s financial mismanagement. What were the Labour leadership doing investing such a disproportionate sum compared to the other investors in a start-up bank?”
“This is public money that has been put at risk through an inappropriate investment and it’s time the Labour leadership explained the exit strategy. Conservatives have been calling for this since we became the official opposition in 2021.
“It seems that Labour Councillors are making the mistake of the novice investor by clinging onto their investment in the hope that all will come right in the end. When challenged they throw up the usual smokescreens regarding lending to Small and Medium Enterprises, but what is never revealed is how much cash has been lent to businesses based in Warrington. Warrington should not try to be a piggy bank for the whole of the North West.“
He said WBC’s investments were largely funded with government loans, so the council is left with the burden of paying interest on the money they borrowed to invest.

Cllr Critchley added:“Not only is the valuation of the council’s £32M ordinary share investment now fallen to £6.7M, down by more than £25M, but WBC is incurring interest and other costs of arrounf £1.5M per annum! And not a single penny in ordinary dividends received.”
“I’m sorry, it’s just not good enough to hear the Labour leadership parrot austerity as the reason they had to make these high-risk investment decisions; very few other councils have been foolish enough to follow this route. The chickens are really coming home to roost for Warrington’s out-of-their-depth Labour leadership.”
“So can the Labour leadership please look in the mirror and then explain to the people of Warrington what they are going to do to save our town from this latest example of their poor financial decision making?”
Cllr. Mitchell has been approached for comment.

In the draft accounts Deputy Chief Executive & Director of Corporate Services Lynton Green says the 2022/23 financial year provided several challenges unlike any year before it with the cost
of living crisis defining the year.
The UK has been experiencing its highest rates of inflation for nearly 40 years, with Consumer Price Inflation (CPI) at 10.1% during 2023. A major factor was the massive increase in electricity and gas bills faced by the nation and the Council. To combat inflation, the Bank of England has raised interest rates to 4.25%, the highest rate in 14 years.
This period of unusually high inflation and interest rates had major implications for the economy and the Council. It resulted in a massive increase in demand for Council services; large increases in borrowing costs as interest rates increased; falls in the value of our assets and investments reflecting the trend nationally; and large increases in the Council’s utility costs.
In relation to Redwood Bank Mr Green said in the report: “In 2017/18 the Council purchased a 33% share in Redwood Financial Partners Limited, who wholly own Redwood Bank, which was a new challenger bank, with its main purpose of investing in small business. This was the outcome of nearly three years of consideration by the Council, including the Supporting the Local Economy Policy Committee, which started from an initial review of how the Council could help support Small Medium Sized Enterprises (SMEs) within the town and a consultation with the business community.
The bank obtained its banking licence in August 2017 and is currently performing well. The Council, subject to the Bank’s performance, planned to invest £30m in the bank over a 3 year period. In 2017/18 £10.2m was invested by the Council, with a £21.763m invested since. Due to the current national economic situation like other banks the Council’s equity investment in the Bank fell in value to £6.7m at the 31st March 2023. The Council’s tier 2 investment of £4.2 million did not decline in value.
Redwood Bank was subject to a comprehensive business case and risk assessment that was scrutinised and agreed by the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority. The Council has commissioned an independent valuation of Redwood Financial Partners Limited (RFPL).
The Bank recorded a profit of £2m for the financial year ending December 2021, in its fourth full year of trading, and is finalising their audit for the December 2022, which will again record a profit. This is a considerable achievement and the Bank is successfully lending, as planned, to business customers and SMEs, including over 24% (over £100m) of the Bank’s lending to date having occurred in Warrington and the North West, supporting the growth of SMEs in the region. The Bank has a physical presence in Warrington town centre, and currently employs 30 staff in the Warrington Office at The Base. The original business plan, written over six years ago (before COVID-19 and the more recent adverse macro-economic influences to date) could not have predicted exact financial forecasts, taking into account that the events mentioned were largely unforeseeable and therefore impossible to predict beforehand. That said, the Bank continues to review/revise (as required) its budget and business plan annually, and aims to operate and deliver against these. The Bank has outperformed any reasonable
expectations under market extreme conditions, and in four years achieved profitability, unlike a number of other Challenger Banks.”
The council full draft accounts can be viewed online CLICK HERE