WITH current debts of £1.8b Warrington Borough Council has again defended its controversial investments despite reports it could lose millions on part of its property portfolio in Birmingham.
The council also says any potential loss on the Mailbox retail, leisure and office development, after the company behind the development defaulted on a major loan, would not result in any budget cuts or impact on services including bin collections.
It follows a national report stating the council could be forced to make further cuts to public services following the latest financial blow.
The council invested £10m in Mailbox but the company behind the development has defaulted on a major loan and looks set to sell the asset to pay off a £108.5m debt.
The sale of the Mailbox, which includes a cinema, restaurants, bars, shops and offices, is estimated to achieve around £120m, but around 90 per cent of the proceeds will go to German financial powerhouse Deutsche Bank in order to pay back its lending on the scheme.
Warrington council owns just under 12 per cent of the development, meaning it would net around £1.4m on its original investment of £10m, resulting in a loss of around £8.6m.
A Warrington Borough Council spokesperson said: “No loss has currently occurred with this investment. If the investment were to fail, it would not result in any budget cuts or impact on future bin collections.
“It is important to note that we have not invested in a property in Birmingham. This is an investment in a property fund – something that many Councils do – that happens to be secured on a property in Birmingham.
“The current situation with this investment is reflective of the economic climate, with interest rate and yield movements that have adversely affected valuations both nationally and internationally. However, the Mailbox asset continues to generate record rents. The asset is currently undergoing a re-structuring exercise which will take several months to finalise.
“We prudently have a strategic risk reserve made up of contributions from previous investment returns that would offset any future losses.”
Last month the council defended its investment in Birchwood Park after opposition Tories said it was now worth £28m less than the council had invested in the business park.
The Government has also expressed “very serious concerns” over the council’s current debt.
9 Comments
Take ALL financial responsibilities from WBC and let the government handle our financial affairs.
Rushing headlong into S114 would be even worse than the current state of affairs. That’d be a heck of a price to pay to underline the mess the council’s made in order for the other lot to capitalise on the problems at our (literal) expense. They watched this happen, for all the noise they’re making now.
The Council’s statement appears to contradict the content of the article. The article states that WBC will make a loss of £8.6 million, whereas the Council spokesman says “No loss has currently occurred with this investment.” Does he/she simply mean ‘we’ll make an £8.6 million loss but it hasn’t all been finalised yet’? If so, that’s a misleading statement.
We don’t need spin, we need clarity, honesty and transparency.
The exact loss will not be known until the financial deal is completed – so no loss yet but one looming.
This is true Gary, but this is also the council that repeatedly tells us that parts of its property portfolio are worth more than we have staked on them. Which is it to be? Real values when it’s a potential loss, but book values for potential gains?
A mixed bag – like any investments, some you win, some you lose – the big question is should councils speculate to accumulate when there is always a risk?
When I worked in local government it was actually illegal to enter into investments of this nature with public money. There has been a massive shift in culture over those, erm, decades.
The short answer: no, councils shouldn’t speculate. That isn’t their role.
The Nolan Principles in public life of Selflessness, Integrity, Objectivity, Accountability, Openness, Honesty and Leadership, seem to have been put on the back burner during the years of the Bowden/Mitchell administration.
No there will be no cutbacks in services they will just increase your council tax to pay for the council’s financial incompetence