Challenger bank Shawbrook swings to profit after three years

 
Tim Wallace
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SMALL business specialist Shawbrook Bank swung into profit in 2013, its full year results show today.

The bank is considering a stock market flotation in 2015, pushed back slightly from the late 2014 date thought to have been considered previously.

The lender was formed from three older firms by RBS private equity arm in 2011 and made a profit of £16.8m last year.

By contrast it lost £7.1m in the previous year.

In part it has grown through acquisitions – the bank bought Singers Asset Finance in 2012, and today announced the acquisition of Centric Commercial Finance which adds another £200m of loans to its balance sheet.

By business line, the bank grew most in commercial property lending which increased 170 per cent to £541m.

Asset finance expanded by 28 per cent to £447m and secured lending 81 per cent to £295m.

The smallest part of the bank, consumer lending – largely through finance for projects like home improvements – increased 291 per cent to £115m.

“It is fair to say the momentum that generated profits in the second half of 2013 continued strongly into this year, so we expect a very much larger profit for 2014,” said CEO Richard Pyman.

CHALLENGER HITS INDUSTRY BENCHMARK ON SUCCESS

Setting up a new firm is always a risky venture – plenty don’t make it.

One difference in banking is that new firms have to prove to regulators they have experienced staff and a strong capital buffer.

So you might expect most new banks to stick around for a few years. But that does not mean it is easy to make a profit. Of the new banks hitting the market in recent years, it typically takes around three years to turn a profit.

Shawbrook managed it in that time period, though it did have the foundation of beginning life as three firms merging into one, under a new brand. It has also acquired several firms to help it grow its balance sheet rapidly.

Another top challenger also grew with a huge acquisition – Virgin Money hit the big time by buying the so-called good bank part of Northern Rock in late 2011.

Virgin Money also lost money in 2011 and 2012 before turning a profit in 2013.

Aldermore was established five years ago, making a profit in its third year.

But an alternative model can be harder to pull off – Metro Bank began from scratch in 2010 and has not gone down the route of acquisitions.

Instead Metro Bank – known for supplying treats for dogs – chose the expensive path of building a branch network, and has yet to make a profit.