Aldermore’s sale interest shows banks are over motor finance
Lloyds, Nationwide and Investec are all tipped to be circling Aldemore as its South African over prepares a sale. Samuel Norman takes a look at the runners and riders and what it could do for the market.
Has the banking industry finally moved on from motor finance? The number of suiters circling Aldermore suggest as much.
After nearly two and a half years of dealing with the car finance headache the banking sector appears ready to park the matter. South African lender Firstrand confirmed earlier this year it would sell its specialist UK bank Aldermore following a hit from the car finance scandal.
The saga has related to the use of hidden commission deals between car dealers and lenders that left consumers in the dark. It has caused some of the top banks in the City to set aside billions in provisions and the Financial Conduct Authority (FCA) expects the overall redress scheme to cost the industry £9.1bn.
Aldermore – whose loan book is around 25 per cent car finance – has set aside around £750m.
Yet despite having the motor finance shadow cast over its sale, numerous bidders have emerged from the woodwork. One City source close to the sale said there was a “breadth of interest”.
And the suitors that have emerged since reflect that. Lloyds Banking Group became one of the first names pegged to Aldermore, and is widely seen as a front runner.
The firm is well-versed in the headache of the motor finance debacle, having already set aside £2bn in provisions. Inheriting Aldermore’s £17bn loan book will help strengthen its position as Britain’s biggest motor finance provider – an area they have shown no interest in backing away from despite the troubles.
But perhaps of more interest to Lloyds, 40 per cent of Aldermore’s loanbook comes from the buy-to-let (BTL) market. This is an area Lloyds is already a player in, occupying 15 per cent of the market via its subsidiary BM Solutions. That gives it the silver medal for overall lending just behind Nationwide, which City AM revealed on Tuesday was also preparing a bid for Aldermore.
Nationwide and Lloyds enter tussle for Aldermore
Fresh off integrating its mammoth takeover of Virgin Money, Britain’s biggest building society may be ready to open its purse strings again, if only to maintain its spot atop the BTL leaderboard. In a potential sign of how important this may be to the firm, one City source said this week they were “shocked” to see firms not exposed to the motor finance market enter the fray for Aldermore.
RBC analysts anticipate Aldermore will come with a price tag of £1.35bn. Earlier this year, Natwest, Lloyds and Barclays entered a bidding war over wealth manager Evelyn. Natwest would emerge victorious, coughing up £2.7bn in a deal many at the time branded an overpayment.
Should a similar situation with Aldermore emerge, Lloyds may find a situation where it is once again tightening its belt and perhaps waiting for the right deal to bulk up its fee-income and wean its reliance from net interest income.
Natwest has been floated as a potential contender, though is still in the midst of integrating Evelyn. The bank did bring forward its share buyback timeline by six months in July in a suggestion it may have some cash to play with. Investec – a direct competitor on Firstrand’s home turf – is also understood to be plotting a bid and unlike its South African peer is doubling down on the UK market.
Among those with deep pockets who could find Aldermore in their clutches is a sea of private equity firms. Warburg Pincus is expected to submit a bid, as is financial-focused JC Flowers as part of a tie-up with CVC.
Aldermore holds a full-fat UK banking licence making it a perfect bolt-on firm for any private equity giant looking to play in the country’s banking space.
And perhaps eventually Aldermore comes full circle. Firstrand took the bank off the London market in 2018 for £1.1bn. A few years down the line and some private equity gleam might land the UK bank right back where it was a decade prior. Though by then – given the rate of mid-market consolidation – there may be fewer banks to share the stage.