British Business Bank chief Louis Taylor on risk: ‘Even if the worst happens, you learn’
For a man running a bank that has found itself at the centre of a fraud storm over the past two years, Louis Taylor talks warmly about the concept of risk.
The state-owned British Business Bank he now runs shot to household-name status through the pandemic and enjoyed a moment in the sun as the engine room behind the government’s covid business support schemes.
Since then, that view has soured somewhat. The bank has been accused of overseeing a “colossal cock up” and “woeful” management of its loan schemes by a former government figure.
But Taylor, who took over the reins of the bank in November from interim chief Catherine Lewis La Torre, thinks the bank needs to embrace more risk rather than shy away from it.
“We’re set up to deal with entrepreneurs who are risk takers, and we’re there to do the things the private sector won’t,” Taylor tells City A.M. in an interview at its Blackfriars office. “The risk appetite that implies for the organisation is really quite high.”
Entrepreneurs – the British Business Bank’s customer base – are “value maximizers”, he says, while the government – its ultimate source of funding – is a “loss minimizer”. Taylor sees his role as championing the cause of his customer base to a government that can, at times, be pulling in a slightly different direction.
“We have to be true to our mandate. We’ve got to push in government to be more value maximizers and help the risk takers that we’re there to help.
“Otherwise, what’s the point of us?”
Private sector mindset
Taylor’s willingness to forge ahead with a risk-first mindset may in part point to his background. He cut his teeth as an an M&A banker at JP Morgan before transitioning into in-house acquisition roles at industrial firms Cookson Group and BTR, and later Standard Chartered.
He says the “soul food” of charity trusteeships however pushed him more towards his public sector and less profit-centric roles.
Now at the BBB he oversees a national network of equity and debt funds, first thought up by the Lib Dems under the coalition government, designed to get cash flowing into small businesses that might be otherwise shut out from financial markets.
The Bank has just launched a major new £200m investment fund in the South West which he hopes will inject a wave of capital into the region and ignite more private sector investment. That sits alongside a range of debt and equity funds across the corners of the country.
But Taylor says it was in his previous position heading up the government’s credit agency UK Export Finance that he became intimately familiar with the idea of productive risk in the public sector.
“In my last role at UK export finance, I really worried about some of the exposures we were taking because there are huge amounts of money to single counterparties, if it was €2bn to the Turkish government, or it was €1.9 billion euro to the Egyptian government. I kind of worried about those exposures,” he adds.
“We manage financial risk here at the bank very closely. But there’s no single exposure in this vast portfolio of smaller businesses that, individually, are quite risky,” he adds.
“None of those exposures are large enough to make a big dent in the bank at all. So I’m actually quite relaxed – and I may live to regret it – about the financial risks that the bank is running.”
Taylor says the thesis is holding up strongly despite the torrid environment for small firms over the past year. The bank, he says, is yet to see any marked uptick in defaults or a wave of insolvencies in its customer base.
Colossal cock up?
Part of that has been closer risk control in its portfolio and more time to weigh up those dangers. When it was thrust into the heart of the government’s covid response in 2020, it did not have that luxury.
Between the 1st April 2020 and the 31st March 2021, the bank ramped up its financial support to small businesses by more than £80bn to nearly £89bn.
So-called Bounce-back loans made up the majority of the Covid-era lending, with £46.6bn of a £77bn total coming from the scheme and the rest coming from ‘business interruption’ schemes designed to help firms limp through the catastrophic shut off in revenue.
British Business Bank figures at the start of the year found that £1.1bn in loans however had been flagged by lenders as potential fraud, while the total cost of Covid-era loan losses through defaults to the taxpayer could total £11bn.
While the scale of defaults and fraud have drawn the ire of some, Taylor thinks the conversation has become one-sided.
“I would argue that a balanced discourse around the COVID loans not only points out the fraud – because it happened – and then learns the lessons from that, but also points out the benefit of those schemes,” he says. “Up to half a million businesses and up to three million jobs were saved by the schemes.”
The fraud was predicted by the bank and ministers had “full knowledge of that” and “wanted to go ahead”, Taylor says.
“That’s their decision.”
He takes a similar view of the controversial Future Fund, set up by then Chancellor Rishi Sunak as a sort of government venture arm. Some ten per cent of the firms backed by the fund have since collapsed, the Guardian reported earlier this year, but Taylor argues it’s still “not a trivial possibility” the bank will make back all the taxpayers’ money pumped into the firms.
Embracing risk
Pushing for a more measured assessment of risk in a portfolio is now central to Taylor’s mindset and vision for the bank.
Chancellor Jeremy Hunt has turned to Taylor and the BBB to play a central role in resetting the narrative around risk in public and private sector discourse. In his Mansion House reforms speech last week, Hunt asked the BBB to deepdive into a new investment vehicle to facilitate the flow of pension cash into more firms.
The request came as some of the top pension funds committed five per cent of their defined contribution assets to growth firms, and Taylor hopes the shift is an important commitment in the context of reviving the risk appetite in the UK.
“I do think that we are in a period where perhaps some of the negativity [in the economic outlook] has caused people to hold back their risk appetite,” he says. “Entrepreneurialism does require a risk appetite.”
Taylor is hoping that collectively, the bank’s initiatives and its new role in the pension push will begin something of a shift in the national psyche. And even now after a bruising two years for the bank, he’s more than happy with a few ambitious small businesses going under.
“Give it a go. Even if the worst happens, you learn something,” he says.