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The British Business Bank fell to a £135mn loss after tax in its most recent financial year as its investments were hit by a decline in tech company valuations.
The state-owned economic development investor on Monday reported a £146mn loss on its investment portfolio in the 12 months to March — 5 per cent of the portfolio’s total value — against a £619mn gain the previous year.
Founded in 2014, the BBB is tasked with increasing the supply of finance available to smaller British businesses by lending to companies or taking an ownership stake. It invests in venture capital funds that provide financing for companies in sectors including technology and life sciences, as well as overseeing financing for regional investment and start-up funds.
Valuations of technology companies around the world have been hit in recent months as investors worry about high interest rates and economic growth. BBB chief executive Louis Taylor indicated that he did not expect an immediate rebound, warning that the “unwinding of previous unrealised gains may well continue over the next 12-18 months”.
Taylor said the bank had continued to support businesses despite the tougher economic and funding environment, and that companies were proving resilient, with lenders reporting relatively low default rates from borrowers even as rates have risen.
“It’s a challenging business environment, but it’s by no means cataclysmic,” he said.
The BBB was continuing to back companies but Taylor, at the helm since the end of 2022, said that partnering with private investors had become more difficult.
“We’re willing to write cheques but I think the private capital we’re looking to crowd in around us . . . there is some reticence there,” he said.
Most of the bank’s investment losses had not been realised because it held investments over the long term and expected to ride out fluctuations in the short-term marked-to-market valuation of its assets, said Taylor.
“I think the important thing is that at 56 per cent of our balance sheet, which is in these equity investments where the biggest shift (in valuation) has happened, that’s . . . still sitting at one-and-a-half times the price that we paid for it,” said Taylor. “So it’s not like the taxpayer is doing badly on this portfolio.”
The bank reported an adjusted return of 6.5 per cent, ahead of its 1.3 per cent target but much lower than last year’s figure of 18.2 per cent. While equity valuations have fallen, the BBB has benefited from higher interest rates on its loans.
The bank said that at the end of March it was supporting £12.4bn of finance for more than 90,000 businesses through its programmes, exceeding its £10.7bn target.
Its core programmes include the start-up loans programme, which has backed more than 100,000 businesses, and the Future Fund, which attracted attention after investing taxpayer money in companies such as Bolton Wanderers Football Club and sex party planner Killing Kittens.
The BBB also administered the government’s Covid-19 support schemes for businesses, which have continued to attract scrutiny. Official figures published this month showed that by June the government had paid £6.9bn to commercial lenders after guaranteeing to cover their losses if borrowers failed to repay “bounce back” loans.
The bounce back scheme allowed businesses to borrow up to £50,000 from a bank, with the loans backed in full by government guarantee.
Taylor said that, as administrator of the schemes, the BBB was spending “appropriate time” on recovering funds for the taxpayer “whether it’s fraud or just pure credit losses”.
However, since the loans had been made by commercial lenders and the guarantee was provided by the government, they did not affect the BBB’s balance sheet, he added.