Shawbrook rejects £825m takeover

The deal would have seen Pollen Street Capital buy back the bank it took to flotation, in partnership with BC Partners. The offer valued Shawbrook at 330 pence per share but was today rejected by the board as it published its annual report. Analysts said the offer undervalued the bank.

Overall, Shawbrook’s loans grew 22% to £4.1bn in 2016, up from £3.4bn in 2015. The bank saw a 14% increase in pre-tax profit to £91.4m, from £80.1m the previous year.

The property finance division remains Shawbrook’s largest area of business. Full-year originations totalled £1.bn, a 20% increase on the prior year. The divisional contribution rose by 33% to £82.5m and the loan book reached £2.5bn at the end of the year.

Commenting on the annual results, chief executive Steve Pateman (pictured) said 2016 was more challenging than anticipated because of the macroeconomic climate and the identification of a controls breach in its business finance division in June.

However, he pointed to a strengthened management team, with CFO Dylan Minto and COO Angela Wakelin both joining in 2016, and said the bank is “well placed to take advantage of the opportunities that will continue to arise from the structural changes taking place in the UK banking market”.

Within property finance, Shawbrook has built on core propositions in buy-to-let, commercial property, residential (second charge) and short-term lending by adding development finance in the third quarter.

In addition it has developed “a suite of residential lending solutions including interest-only extensions into retirement – a market that has been neglected for some time”.

Its ‘lending into retirement’ proposition will launch in early 2017, with a complex mortgages product set to follow.

“This diversification will underpin flows in what we expect to be a softer buy-to-let market going forward as tax changes and revised underwriting standards take effect,” said Pateman.

Buy-to-let flows were strong in 2016, said the bank, particularly in the first quarter of 2016. Second charge originations were broadly flat, reflecting the impact on the market of the transition from the Consumer Credit regime to the Mortgage Credit Directive.

Short-term property finance improved, although Pateman said: “This can be a price-sensitive market and may be constrained by any adverse economic conditions flowing from the UK’s decision to leave the EU.”

The bank added that the introduction of minimum underwriting standards for BTL mortgages from the PRA could be beneficial for specialist lenders such as Shawbrook, whose target market only consists of professional landlords and lenders which already have in place the operational framework for stressed affordability assessments and manual underwriting.