British Business Bank: Down, but Not Out!

The British Business Bank (BBB) reported a £135mn loss after tax in its most recent financial year as its investments were hit by a decline primarily in tech company valuations. 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. The BBB invests in venture capital funds that provide financing for companies in sectors including technology and life sciences, as well as an active involvement in financing for regional investment and start-up funds.

Valuations of technology companies around the world have been hit in recent months due to investor concerns 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 most companies were proving resilient, with lenders reporting relatively low default rates from borrowers even as rates have risen, so far.

“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.

This may be due to the emphasis on channelling funds away from the Golden Triangle of Cambridge, London and Oxford, in favour of the regions and incorporating a increasingly strict Environmental, Social and Governance (ESG) criteria to many of its investments.

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 BBB 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.

(Source: FT)

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