Analysis & Comment

Challenger banks Charter Court, OneSavings agree to all-share merger

(Reuters) – OneSavings Bank Plc said on Thursday it will merge with online mortgage bank Charter Court Financial, giving it more heft as it takes on the bigger banks in Britain.

The merger, which marks a major step towards consolidation in the challenger banking market, will make the combined company one of Britain’s biggest specialist lenders with a joint market value of 1.75 billion pounds ($2.32 billion).

The companies had said earlier this week that they were in advanced talks about an all-share combination.

OneSavings also reported a 15 percent rise in full-year underlying pretax profit to 193.6 million pounds ($256.81 million), as it benefited from a focus on providing mortgage credit to bigger, professional landlords.

The deal values Charter Court at 784.5 million pounds and is at a marginal 0.86 percent premium to Charter Court’s Friday close of 325 pence, according to Reuters calculations.

The deal follows last year’s merger of rival mid-sized bank CYBG and Virgin Money, and comes at a time when margins have been constrained by pricing pressure in a mortgage market where competition is high and growth, due to the uncertainties of Brexit, hard to come by.

OneSavings will buy all of Charter Court’s shares for 0.8253 new OneSavings share for each Charter Court share, whose biggest investor is Elliott Management.

OneSavings shareholders will hold about 55 percent and Charter Court shareholders the rest in the combined group, the banks said, adding that OneSavings’ top boss Andy Golding would become chief executive officer of the combined group.

The two boards believe the deal has a strong financial rationale, with cost saving seen as a plus point, it said.

OneSavings, which is heavily involved in property transactions, also said its loan book grew 23 percent to 9 billion pounds, while net interest margin was 304 basis points from 316 basis points in 2017. The company raised its lending growth forecast for second time in November.

OneSavings, founded in 2011 as part of a private equity buyout of Kent building society KRBS, has been well-protected so far from a softening of the housing market in London and south-east England by its focus on providing mortgage credit to professional landlords and tightened lending criteria for financing smaller developments.

($1 = 0.7532 pounds)

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