Charter Court and OneSavings rise after confirming merger talks

11th Mar 2019 07:10

(Sharecast News) - Challenger banks Charter Court Financial Services and OneSavings Bank confirmed that they are in advanced talks about a potential merger to create a "leading specialist mortgage lender in the UK".The deal would be structured so that OSB would acquire Charter Court and its shareholders would end up with 55% of the enlarged group, with OSB chief executive Andy Golding continuing in that role.A merger of OSB, which floated in mid-2014, and Charter Court, which joined in 2017, would create a group with a market cap of around £1.6bn, a loan book of around £15.5bn and offers, the pair said, "compelling strategic and financial rationale".Directors of the two lenders said the merger would enable the enlarged group to "establish a well-balanced, resilient and diversified retail-wholesale funding platform" and maintaining two independent broker distribution platforms.Activist investor Elliott is Charter Court's largest shareholder, with a 31.6% stake, while Merian Global Investors, the former Old Mutual Global Investors that was bought out in 2018, holds stakes in both companies and is OSB's biggest shareholder, with 15.2%, plus owns 18.5% of Charter Court.Charter Court operates through three brands, online-based Charter Savings Bank, residential and buy-to-let specialist Precise Mortgages and Exact Mortgage Experts, which administers mortgages originated by Precise and some third parties, also offering portfolio pricing services and credit consultancy to institutional clients.OSB also offers lending and retail savings franchises, with its Kent Reliance online and postal savings arm and lending focused on buy-to-let, commercial and semi-commercial mortgages, residential development finance, bespoke and specialist residential lending and secured funding lines.Analyst Gary Greenwood at broker Shore Capital said: "Overall, we view this proposed combination as relatively unsurprising given the strong similarities between the two organisations. The terms appear reasonably sensible to us given that we currently see similar upside to fair value for both stocks (of around 50%)."Execution risk should also be relatively low, in our view, given the similarities between the two organisations and the fact that the deal appears to have been proposed on friendly terms. We see the likelihood of an interloper or alternative bidder for either company appearing as being low."With both OSB and Charter Court operating in the "very unfashionable and unloved" BtL mortgage space, Numis saw strong potential for synergies even though both are growing rapidly and both have market leading levels of operating efficiency.Investec said the pair were the "two cheapest and (in our view) the two most outstanding banks in our coverage", with CEO Golding "highly regarded".