UK Edition
Challenger banks defy Brexit vote with booming revenues
Shawbrook Bank and Metro Bank both earned record revenues in the second quarter of 2016, defying warnings that uncertainty around the EU referendum would harm business.
The bosses of both challenger banks also claim to have seen little impact on demand from customers since the vote, bolstering hopes that the UK will avoid a recession in the wake of the vote.
Metro Bank moved closer to a profit, slashing its losses in half after six years of expensive investments in property and staff.
The lender, which was set up in 2010 and floated on the stock market earlier this year, made a pre-tax loss of £5.9m in the quarter, down from a loss of £8m in the same period a year ago and moving it closer to turning a profit.
“We’ll go into profit on a month-by-month basis later this year, I see no reason to change that [forecast], and go into full year profit next year,” said chief executive Craig Donaldson.
“Since the referendum vote we have seen no change in customer behaviour or impact on business flows.”
One worry for investors may be that Metro focuses on London and the South East, where property prices could be most affected by the Brexit vote.
Mr Donaldson argues the bank should be insulated from that as its average mortgage has a loan to value ratio of 60pc, protecting it from losses, and none of its loans are above 85pc.
Metro’s shares rose 6.4pc on the results.
Meanwhile Shawbrook Bank’s pre-tax profits for the first half of 2016 climbed 42.5pc to £35.2m. They would have gone higher but for a £9m charge to clean up poor lending controls identified in the bank’s asset finance arm.
Shawbrook has seen weak demand from businesses as small firms appear to be trimming back their investment plans while they wait to see what Brexit really means.
Individual customers, however, are spending enthusiastically, particularly borrowing to finance home improvements.
“Our pipeline is where we thought it would be when we expected we would stay in the EU,” said chief executive Steve Pateman.
“In the second quarter we saw a slowdown in businesses looking to invest in assets, so asset finance was our weakest business, and that is a reflection of businesses deferring decisions. I expect they won’t be rushing into those decisions now until they get greater clarity on the way the world looks post the decision to leave the EU.”
But the picture is different for demand from households: “The guy on the street who voted to leave didn’t think it was a bad idea and has not changed spending activities,” said Mr Pateman.
“Fifty-two per cent of them did vote to leave, so consumers have picked up, there has been more activity around household improvements since the referendum,” he said.
Shawbrook’s shares edged up slightly following the results.
"The second quarter of 2016 has been the best yet for Shawbrook. For investors willing to look through the £9m [charge] in Asset Finance, we see material upside ahead," said analyst Ian Gordon at Investec.