The private equity firms hoping to buy Charter Court Bank at a knock-down price have been left disappointed after the bank’s investor, Elliott Associates rejected all bids this week.
Charter Court, which owns Precise Mortgages and Exact, was on the market for £400m but it is believed that BC Partners, Varde Partners and Warburg Pincus put in bids between 10% and 15% lower than the asking price.
It follows the news in April that the potential buyers had requested the sale contract include a so-called “Brexit clause” that would ensure any detrimental impact on the business was taken into account in the valuation.
Sources suggest that the decision not to sell has prompted the bank to concentrate on a stock market flotation within a couple of years.
Charter Court made a profit after tax of £21.4m in 2015, a figure that is expected to nearly double this year to £40m.
Based on the valuations of publicly traded peers including Shawbrook, Aldermore and One Savings Bank, the price earnings ratio implies that Charter Court would be worth in the region of £400m.
A report published today by KPMG warned that challenger banks face a tough future with a disproportionately weighty regulatory onus being put on them.
The report, written by Warren Mead, said: “A potential inhibitor to challenger growth is a regulatory regime that in some respects tends to favour incumbent banks over the emerging challengers.
“This is particularly true with regard to the regulatory capital regime. In theory the rules apply equally to all banks, in praxis however, they don’t.
“Challengers have to hold more capital in comparison to the big banks. The reason for this is perceived risk. By definition, a challenger is new to the market and consequently lacks the trading record and evidential data that an incumbent can offer the regulator.”
Precise Mortgages declined to comment.