Fears council is embarking on ‘the next Bristol Energy’ with investment in community bank

Fears are mounting that the city council is embarking on “the next Bristol Energy” disaster by ploughing at least £400,000 in a start-up community bank.

Cabinet members approved the next wave of funding of £250,000 to help Avon Mutual get off the ground, hailing the ethical enterprise as an “undiluted good thing”.

But scrutiny councillors meeting the day before expressed alarm and said the deal should be stopped.

Avon Mutual, which is seeking a banking licence, aims to launch a network of branches and free cashpoints across the west, offering savings accounts and affordable loans to residents and smaller businesses who may have credit problems.

But a report to cabinet said there was a risk the “entire financial investment could be lost” if the plan to launch the mutual failed or if it turned out not to be profitable, and that even if it was, Bristol City Council would not receive any money back until year six – 2027 or 2028.

There are fears Avon Mutual could become the next Bristol Energy. Photo: Bristol Energy

Conservative councillor John Goulandris told resources scrutiny commission members on Monday, November 30: “The road to hell is paved with good intentions and I fully understand the good intentions of this bank and I commend them. But having worked in banking for 41 years I can assure everybody that it is an extremely dangerous area with minefields absolutely everywhere.

“What we don’t want is this bank to become the next Bristol Energy and get sucked in – £100,00 here, £250,000 there, £500,000, another £500,000, and before you know it we might be talking quite a bit of money disappearing.

“This type of bank will encounter enormous bad debts and if you get those, you’ve got to provide more capital. Who’s going to provide more capital? Bristol City Council.”

Green councillor Clive Stevens said a section on bad debt assumptions in a due diligence report, which is exempt from the public, gave him huge concerns over the business model.

“We should stop this being approved tomorrow,” he said.

Conservative councillor Geoff Gollop said the “alarm bells are ringing” and that a banking model with branches was “very old-fashioned”.

Labour councillor Mark Bradshaw said: “I would support any measures to tackle financial exclusion but I am worried about creating a branch network where others are exiting the branch networks rapidly.”

Another Labour councillor, Don Alexander, said: “To have our own bank down here, there is risk but it’s worth taking that risk.”

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Read more: Bristol Energy: a timeline

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Finance director Denise Murray said none of the funding had additional liabilities other than the initial amount, so the only risk was that the investment, which she said was better described as a grant, could be lost.

She said a decision would have to be made in the future for the third and final round of funding when more money would be required if the council wanted to become a board member.

“We are clear in terms of the risks associated,” she said. “That has been clearly identified in the due diligence, but the view from the independent assessment is the models are robust and the assumptions are quite strong.

“But it also indicates that any investor should be a patient, social investor and financial returns shouldn’t be a primary driver.”

Deputy mayor Craig Cheney told cabinet members on Tuesday, December 1, that Avon Mutual had “community wealth-building at its heart.”

“Access to financial services and financial inclusion are of fundamental importance to achieving an inclusive economy where no one is left behind,” he said.

“This local approach will enable us to serve the everyday financial needs of ordinary people, local community groups and micro, small and medium-sized companies.

“It will help us reduce regional inequality, making financial inclusion the norm, build and store community wealth and stop financial exclusion from underserved communities.”

Avon Mutual would support local people. Photo: Lowie Trevena

Cheney said the bank would offer better lending rates and make credit available for small businesses.

“Like all investment there is a risk it may not be returned but there are significant benefits if it can obtain a licence,” he added.

The local authority became a shareholder in the fledgling bank when cabinet signed off £150,000 in July 2019.
Stroud District Council and Wiltshire Council are two of the other investors.

A report to cabinet said the bank aimed to have 24 staffed branches, 200 staff, 97,000 personal and small business members and a £570m local loan book within a decade of trading.

The city council sunk £36.5m into Bristol Energy over five years but recently sold the company for a total of £15.3m, although the full losses are not yet known.

Adam Postans is a local democracy reporter for Bristol.

Main photo: Lowie Trevena

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