Challenger banks’ share prices soar on back of £1.6bn merger talks
Shares in One Savings Bank and Charter Court Financial Services soared yesterday on the news that the firms are in talks regarding a potential merger.
One Savings Bank saw its share price jump 9.84% to 406p in early trading and closed at 410.4p, while Charter Court’s stock was up 10.31% to 338p and closed at 340.6p.
Yesterday, Wolverhampton-based Charter Court Financial Services and OneSavings Bank (OSB) said that they are in advanced discussions regarding a possible all-share combination of the two companies.
The deal, which would be structured as a takeover by OSB, would see Charter Court shareholders take a 45% stake in the combined group.
It is proposed that Andy Golding, currently CEO of OSB, will become CEO of the combined group.
Russ Mould, investment director at AJ Bell, said: “Normally in a merger situation one company’s shares does so much better than that of the other as investors in one of them think they are getting a better deal.
“This does not seem to be the case with Onesavings Bank and Charter Court as both share prices are up very strongly.
“At first glance there does not look to be a hugely strong case for a merger. Both firms are growing rapidly and already have very lean cost bases. Yet management presumably think there are synergies and cost benefits to be found and, if nothing else, the deal provides additional scale in a British banking market which is pretty mature, very competitive and pretty tightly regulated and where there has already been consolidation in the challenger bank arena, in the form of 2018’s CYBG-Virgin Money deal.
“Scale can bring cost benefits particularly when it comes to accessing funds which can then be loaned to customers for a higher interest rate, with the difference representing the bank’s net interest margin and thus a big chunk of its profits.
“The Competition and Markets Authority may well look at the proposed merger, since the combined entity will have a very big market share in the professional buy-to-let business but investors appear to be assuming the deal will be cleared.
“One final thing which the deal does highlight is how cheap some of the challenger banks are, in terms of their earnings, dividend yields and asset values. This reflects concerns over the Buy-to-let market in particular, the UK economy more generally (and thus Brexit), but the old saying ‘you can have good news and cheap stocks, just not both at the same time’ seems apply here. Both OSB and Charter were looking cheap and perhaps the proposed deal is the potential catalyst to remind investors of the value that could be there.”
OSB went public in 2014, while Charter Court was listed on the London Stock Exchange in 2017.
Last November, Charter Court launched its fourth office building in Wolverhampton, accommodating 250 staff. The company was founded with 28 employees in one building on the Broadlands site in 2008, and now occupies four offices at the business park and has grown its headcount to nearly 650.
CCFS said its growth is driven by its planned diversification from its core activity of credit risk analysis into providing mortgages and savings accounts through its Exact Mortgage Experts, Precise Mortgages and Charter Savings Bank brands.
