Council faces £1.3m-a-year bill to borrow cash to fund Redwood Bank investment

In January 2017, the council agreed to pay £30 million to buy a 33 per cent share in the bank.

It has invested £19,994,513 to date but says it is unable to comment on when a decision will be made on the final £10 million due to ‘commercial reasons’.

It currently has a 33 per cent share in Redwood Financial Partners Ltd, which owns and controls Redwood Bank Ltd.

However, the authority has failed to sign off its 2017-18 statement of accounts because of a valid objection questioning whether its investment was legal.

For the period ending December 31 2017, Redwood Financial Partners Ltd said it issued 2,479,059 ordinary shares of 1p each during the year – at a total issue price of £12,707,734.

The council has paid almost £19,994,513 million for 4,195,530 shares, which amounts to around £4.76 per share.

But it says a 1p share is the minimum value of a share but how much it is worth is ‘dictated by the market value at the time’.

“The cost can fluctuate due to changes in the market value,” added a spokesman.

“In short, a 1p share is not worth just 1p – and is dependent on a range of factors.

“By investing in the shares, the council has already supported a number of SMEs and we are confident this is a sound investment – as shown throughout our rigorous due diligence processes.

“The valuation of a bank is complex matter and is normally guided by the current market view.

“The estimated market value of a bank is subject to detailed analysis and is very much subjective.

“For example, market analysis would take into consideration that while normally loss making over the first few years, a new bank is generally considered to have additional value or worth, due to the fact that the company has been granted a banking licence by the regulators.

“This level of detailed analysis is applied to Redwood Bank, as with any other bank.”

Redwood Financial Partners Ltd, in its accounts for the year ending December 31 2017 – signed by director Gary Wilkinson – confirmed its total equity was £9,465,469.

However, it also stated its operating loss for the period ending December 31 2017 amounted to £3,556,766 – with the highest paid director of Redwood Bank Ltd earning a remuneration of £184,125.

The company has refused to confirm how many shares in total are available in Redwood Financial Partners Ltd, as well how many of the shares are yet to be allocated.

But it has not ruled out whether it is just the council which has paid the rate amounting to £4.76 per share.

Furthermore, the council says it is unable to confirm how much its share in the bank is currently worth.

But the authority states the plan is to borrow the entire £30 million and, following a Freedom of Information request by the Warrington Guardian, it confirmed it forecasts yearly borrowing costs to be £1.3 million.

A spokesman said: “The council expects that by year five these costs will be mitigated by dividends received from the bank.

“The council is happy with its investment in Redwood Bank and the performance of the bank.

“We have no concerns about our investment.”

Council leader Cllr Russ Bowden added: "I expect to make a significant return for the council in line with the business plan and its current performance."

Council leader Cllr Russ Bowden

The objection to the 2017-18 accounts was lodged by Penketh resident Chris Haggett, a retired chartered public finance accountant.

He says he is ‘appalled at the delay’ on the part of Grant Thornton in dealing with his objection.

“I lodged it with them on June 10 last year, which is now over 9 months ago,” he added.

“One has to wonder just what they are doing with it.”

Mr Haggett also expressed fears over the uncertainty surrounding the investment, as well as the council’s reference to the banking licence.

He said: “They continue to make great play of the granting of a banking licence to Redwood by the regulators and the additional value this generates.

“As stated in my objection letter, while the Prudential Regulation Authority did grant a banking licence, some 1,700 banks have been similarly licensed and I doubt that that alone necessarily provides sufficient reassurance – the bar should surely be set higher when considering suitability for a major investment of public funds.”

In addition, Mr Haggett raised concerns over the potential size of the fee Grant Thornton will charge the council for the work.

Grant Thornton confirmed it remains in ‘ongoing dialogue’ with the council, which insists it has co-operated throughout the process and provided all the necessary information promptly.

A council spokesman added: “The council’s draft accounts are correct but the public objection means Grant Thornton must take as long as necessary to complete their internal review process.”