Two of the biggest specialist lenders are in advanced talks about a possible merger which would create a business completing around £4bn of mortgage lending a year.
In a statement issued to the stock market this morning, Charter Court Financial Services and One Savings Bank confirmed they were in discussions about a merger.
The news pushed OSB share price up from 369p at the close on Friday to 405p on Monday lunchtime, with a similar rise for Charter Court’s from 306p to 335p.
Charter Court is the parent company of Precise Mortgages, Exact Mortgage Experts and Charter Savings Bank.
One Savings Bank (OSB) is the parent company of Kent Reliance, Interbay Commercial and Prestige Finance, among others.
According to the most recent figures available from UK Finance, in 2017 Precise completed £2.4bn of mortgage lending, with OSB completing £1.5bn.
However, interim results published through the first three quarters of 2018 suggest the lenders are continuing to grow their volumes.
OSB to take 55%
Under the proposed merger OSB would acquire all the issued and to be issued ordinary share capital of Charter Court on the basis of an exchange ratio of 0.8253 new OSB shares for each Charter Court share.
This would leave OSB shareholders owning approximately 55 per cent and Charter Court shareholders owning around 45 per cent of the combined group.
It is proposed that Andy Golding, currently CEO of OSB, would become CEO of the combined group.
The statement added that the boards believe the merger would create a highly compelling opportunity to:
- create a leading specialist mortgage lender in the UK with greater scale and resources to deploy on growth opportunities;
- leverage complementary strengths to create a comprehensive and diversified platform across product capabilities, brands and team cultures;
- leverage complementary underwriting capabilities to enhance the customer proposition;
- establish a well-balanced, resilient and diversified retail-wholesale funding platform;
- maintain two leading, independent broker distribution platforms to create an enhanced proposition to the broker community; and
- maintain operational centres of excellence to drive service levels and platform efficiency.
Under mergers and acquisition rules, OSB is required to make a confirmed offer for Charter Court by 5.00 pm on 6 April.
Merger of equals
Nick Field, director at merger and acquisition firm Livingstone said: “As both OSB and Charter Court have attractive net interest margins around three per cent, a track record of good quality growth, and strong positions in specialist products we see this as largely a merger of equals, which is reflected in the all-share deal structure.”
However, he noted operating costs would likely provide the biggest area of savings and increased profitability.
“Because both businesses lend across a relatively full range of specialist products and have each invested to develop both retail and wholesale funding capabilities, we would expect operating costs to be the primary area of short-term synergy opportunity.
“As the UK specialist finance market is undoubtedly experiencing some reduction in demand arising from economic uncertainty, consolidation presents a compelling opportunity to deliver incremental profitability independent of market growth.”