UPDATE 2-New UK bank OneSavings prices shares low in London debut

Thu Jun 5, 2014 6:00am EDT

(Adds chief executive comment, updates share price)

LONDON, June 5 (Reuters) - OneSavings became the first UK bank to list for more than a decade on Thursday, pricing its shares low to ensure success in a market flooded with new issues and offering scant encouragement to a queue of other small banks looking to follow.

Investors will have their pick of British banks in the next couple of years. Up to five lenders - the so-called new "challenger banks" seeking to disrupt Britain's high-street names and ride a recovering economy - also plan to list.

But a recent glut of IPOs means that interest in new names is cooling, and with this in mind OneSavings priced its shares at the bottom of its 170-225 pence range, valuing it at 413 million pounds.

"There's definitely some fatigue. Investors have got great big piles of paperwork on their desks. For them to be interested you have to find a way to differentiate yourself," said Andy Golding, chief executive of OneSavings.

"We're trying to dance in a few of those gaps that big banks leave behind," said Golding.

Shares in OneSavings opened at 172 pence and were up 4.4 percent from their issue price at 177.5 pence at 0802 GMT.

The bank focuses on specialist lendings, including the market for buy-to-let mortgages. Golding said that the books for the offer were covered more than twice, but that the firm had been advised against a higher pricing in current conditions.

The IPO will raise gross proceeds of 134 million pounds, OneSavings said, of which the bank will receive 41.5 million.

Proceeds from UK listings have more than tripled in the year to date to $8.8 billion, according to Thomson Reuters data last week, as companies rush to take advantage of strong equity markets.

Fellow "challenger bank" TSB is also set to list after owner Lloyds Banking Group laid out plans last month.

Lawmakers and banking regulators are keen to see new banks emerge to break the dominance of Britain's biggest five lenders, which control more than three quarters of the personal current account market and TSB is seen as a viable challenger.

But as a result of conditions in the current market for IPOs Lloyds has limited the flotation to 25 percent of shares, the bottom end of expectations, and banking sources said it could be priced at less than TSB's book value of 1.5 billion pounds.

Analysts at Espirito Santo investment bank said the pricing of OneSavings' float was "a warning shot" for Lloyds' listing.

"The pricing of OneSavings bank at the bottom of the 170-240 pence would appear to be a negative for Lloyds... as investor appetite for UK challenger banks' listings appears lower than first anticipated," they said in a note.

OneSavings is the first UK bank to list since the flotation in 2000 of now-defunct lender Bradford & Bingley's, Golding said. OneSavings was established in 2010 when the struggling Kent Reliance building society was rescued through a 50 million pound capital injection by U.S. private equity firm JC Flowers.

Even based on the price at the bottom of the range, JC Flowers will have tripled their invested capital of around 100 million pounds since buying the bank in 2010 based on the amount of shares sold and their remaining shareholding.

The lender made a pretax profit of 31.4 million pounds last year, up from 8.1 million in 2012, and increased lending by 38 percent to 3 billion pounds. It is targeting a dividend payout of at least 25 percent of earnings.

Barclays acted as global co-ordinator on the OneSavings listing. Canaccord Genuity and RBC Europe were joint bookrunners, while Rothschild advised the deal.

($1 = 0.5969 British Pounds) (Reporting by Freya Berry and Anjuli Davies; Editing by Mark Potter and Sophie Walker)