Aldermore da merrier as another challenger bank swallowed

Comment Martin Flanagan

It seems one of the biggest challenges for self-styled “challenger banks” is to resist the overtures of buyers.

TSB: floated on the stock market in June 2014, picked off by Sabadell of Spain for £1.7 billion the following year. Specialist lender Shawbrook: floated in the spring of 2015, snaffled up by private equity players Pollen Street Capital and BC Partners for £868 million in June this year. Now Aldermore, another specialist lender and challenger: floated two and a half years ago, acquired by South African financial services group Firstrand for £1.1bn.

The challenger template was largely, although not completely, forged in the crucible of the financial crisis and its aftermath. Initially these new banking entrants, with the backing of regulators and MPS, were meant to fill a gap in small business lending as major players such as Lloyds and Royal Bank of Scotland were struggling under bruised public relations partly linked to their taxpayer bailouts.

Other new players like Tesco Bank, Sainsbury’s Bank and Virgin Money had a longer provenance, going back to the halcyon days of the mid to late 1990s.

But the general idea was to shake up the cosiness of British banking’s top table, where the four major players had about 80 per cent of small business lending stitched up. However, it is clear that the ironclad law of unforeseen consequences has quickly come into play. The challengers have been seen by foreign buyers and private equity as there for the taking in a current climate of a sluggish UK economy and weak sterling.

Of course, it does not mean that a new lender on the block has sold out its challenger status just because it has taken the shilling of an acquiror.

As Aldermore and others have pointed out, a new parent’s deep pockets, such as Sabadell or Firstrand, may give the new brand more muscle to make inroads into the UK lending market.

Even so, when these challengers first saw the light of day they did not exactly trumpet that their status would be something of a transitional phase, a staging post, on the way to becoming subsumed in a greater entity.

Will Virgin Money, Tesco Bank, Sainsbury’s Bank be the next one to attract the attentions of bigger players seeking entry into the UK lending market?