March 14, 2019 / 7:27 AM / 5 months ago

Banks Charter Court, OneSavings agree merger ahead of Brexit

(Reuters) - Charter Court Financial and OneSavings are set to create one of Britain’s biggest specialist lenders in a merger that will bolster their defenses in the face of uncertainty brought on by Brexit.

The marriage marks a major step toward consolidation among “challenger banks” and gives the firms more heft to take on the biggest lenders in Britain.

The deal, which will create a lender with a combined market value of 1.75 billion pounds ($2.3 billion), also comes amid a softening of the housing market in London after Britain voted to leave the European Union three years ago.

“It would be wrong if I said both boards haven’t thought about the timing of this. We have got a crazy political situation going on in the UK, an overhang of uncertainty,” OneSavings’ Chief Executive Officer Andy Golding told Reuters.

“We will become stronger together and therefore we lean into that headwind of Brexit with a little weight behind us and that ... is the rationale for not delaying the timing of the transaction,” he added.

The deal was agreed swiftly after the banks disclosed on Monday that they were in talks.

The sector also faces a string of tax and regulatory changes, while margins remain constrained in a mortgage market where competition is high and growth elusive.

Charter Court Chief Executive Officer Ian Lonergan said both lenders are strong in the buy-to-let market, with Charter Court bringing its expertise in residential market and OneSavings its strength in commercial and development lending.

FORGED BY BREXIT

OneSavings’ stock was down 0.6 percent at 394.6 pence, while Charter Court was up 0.1 percent at 325.4 pence by 1020 GMT.

The deal is at a marginal premium to Charter Court’s close of 325 pence last Friday, according to Reuters calculations.

OneSavings will offer 0.8253 of its shares for each Charter Court share. The deal has the backing of both boards as we all Elliott Management, Charter Court’s biggest investor.

(GRAPHIC: As Brexit nears, UK's challenger banks mirror nervous economy - tmsnrt.rs/2Ce5Sjd)

OneSavings, founded in 2011 as part of a private equity buyout of Kent building society KRBS, has been well protected so far by its focus on providing mortgage credit to professional landlords and tightened lending criteria for financing smaller developments.

Both banks have, however, warned of the potential impact of Brexit on the housing market.

The merger will result in 22 million pounds of pretax cost savings by the third year of completion. The combination will also see the 1,684 full time employees of the combined firm cut down by 235.

Malcolm Williamson, chairman of Charter Court, will chair the merged group while OneSavings’ Golding will retain his position as chief executive.

OneSavings and Charter Court both reported higher full-year profits on Thursday, with bigger loan books.

Reporting by Noor Zainab Hussain and Samantha Machado in Bengaluru; Editing by Saumyadeb Chakrabarty/Keith Weir

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