Shareholders at Metro Bank have had a grim week. Since it revealed last Wednesday that it had made an accounting slip-up, the stock has fallen 48 per cent
When the Mail revealed that Metro had not discovered the error itself – as it first claimed – but instead was notified by the Bank of England, investor confidence was pushed down even further
But Metro's troubles should not encourage shareholders to tar all of the challenger banks with the same brush
Challengers, so named because they provide an alternative to the major High Street lenders like Barclays, HSBC and Lloyds, are not all the same
Some are relatively similar to the big four but operate on a smaller scale, such as TSB and CYBG, owner of Clydesdale and Yorkshire Bank which last year bought Virgin Money
They are targeting the same ordinary customers as the traditional players, taking deposits and making the same bog-standard loans
Then there are the digital start-ups such as Starling, though many of these are not listed on the stock market so investors can't yet get a piece of the action
Specialist lenders liked Charter Court or Paragon, which provide debt to those considered too risky by mainstream operators, are also sometimes put under the challenger bank umbrella
For small investors keen on shares in financial companies, the listed challenger banks may offer an interesting alternative to big-name lenders, says Anthony Da Costa of stockbrokers Peel Hunt
Traditional banks tend to offer a low return on capital. In part this is because they still have costly branch networks, despite closing down hundreds in recent years
Some of the challengers also have lots of branches, such as CYBG and Metro. Others, such as Onesavings Bank, Charter Court, Paragon and Secure Trust, are much more compact
These banks provide specialist mortgage lending to consumers, entrepreneurs and small businesses – people who may struggle to get loans because their income is unpredictable or they have a poor credit score
RELATED ARTICLES Previous 1 2 Next Share dealing: Flat-fee of £12.50 a trade with no annual
Metro boss fights for his future: Bank could face. TSB notches up losses of £105m after botched IT upgrade
Share this article Share Because the loans might be more risky than traditional banks are willing to take on, the specialists carry out deeper analysis, taking into account more nuances so they can weigh up the risks
And higher risk means they charge a higher rate to borrowers, which Da Costa reckons makes them highly attractive
They pull in deposits by offering good savings rates through the Best Buy tables published on websites and in magazines
Those funds are then lent to borrowers at a higher rate than is paid to savers.Deposits from retail savers are a more stable and cheaper form of funding than going to the wholesale markets
While many of these banks have steadily increased their lending in recent years, Metro has aimed for rapid expansion
Its speedy growth is one of the reasons it has run into trouble, as the quality of its lending has come into question
Metro's high growth expectations also meant it was valued at as much as 50 times what it earned in a year, because investors were hoping it would become larger and make bigger profits in future
Expectations of how quickly it would grow were much higher than for the likes of Onesavings, Secure Trust Bank and Charter Court, which meant there was plenty of potential to disappoint
The latest share price crash has brought Metro closer into line with its competitors, which are still racking up impressive growth
Russ Mould, investment director at AJ Bell, explains: 'Most challenger banks have been set up subsequent to the great financial crisis to capitalise on the loss of faith by customers, the problems that the big banks brought on themselves, and to offer a more digital savvy approach
The challengers are there to try and give people an alternative to the headlines they saw, or service they received, coming into and out of the crisis
'The fact that several challenger banks – including Charter Court, Onesavings and Metro itself – are not yet old enough to have been tested by a recession may be putting some investors off
Da Costa recalls that one senior individual at a challenger bank even told him recently they would welcome a short, sharp downturn just to prove their model worked
Other factors weighing on the wider sector, such as high competition and the threat of an economic downturn, have kept the challengers' shares depressed
But because they are so low, they could be seen as attractive takeover targets. Lender Shawbrook was bought by private equity in 2017, and Aldermore Bank was scooped up by South Africa's Firstrand later that year
Both deals offered shareholders a decent premium to the share price.As Brexit weighs on banks' shares, Mould says, the possibility of another such deal shouldn't be taken off the table
Không có nhận xét nào:
Đăng nhận xét