Lenders boom out of Eurozone crisis

Lenders boom out of Eurozone crisis




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As the UK’s biggest mortgage lender and most of Project Merlin’s other key players announce substantial losses for the first half of 2011, business at fledgling bank Aldermore and real estate financier Montello Income Fund has never been better.

In addition to losses created through anticipated claims for the mis-selling of Payment Protection Insurance (PPIs), our high street banks are currently experiencing multi-million pound repercussions from their investments in Eurozone government bonds.
Lloyds’ net losses were £2.31 billion during the period, as the bank was forced to set aside hefty provisions for its exposure to Irish bank loans.
Concurrently, the Royal Bank of Scotland (RBS) announced £1.4 billion losses in the six months to June 30 2011, after taking a £733 million provision for its exposure to Greek government bonds.
Ironically, RBS’ core operating profits increased to £1.7 billion from £1.1 billion in 2010, demonstrating the extent to which the Eurozone crisis, the US debt ceiling woes and the wider global economy affect institutions with an interest in them.
The winners in this unfortunate saga are few and far between, although one that springs to mind is Aldermore.
This bank has no wholesale funding, bad debts, mis-selling scandals or toxic assets, and it doesn’t hold any Greek, Irish, or other risky bonds. It was recently revealed that the bank had broken even on a monthly basis for the first time and accumulated total assets of £1 billion.
Focused on lending to SMEs and UK homeowners, new British bank Aldermore has managed to lend £525 million to 7000 small businesses and £280 million to UK house buyers, through a ‘traditional’ approach to lending – by financing loans through its savings deposits.
Another key aspect of the bank’s success is its brokers. Since it has no branches, Aldermore is heavily reliant on intermediaries to bring in business.
Rob Lankey, Managing Director of Commercial Lending at Aldermore, explained: “Aldermore's commercial mortgage lending activities are predominantly undertaken via professional mortgage brokers and they have played a fundamental role in our growth and success to date. 
“Our strategy has been to develop a close and productive working relationship with between 70 and 100 brokers. The number has fluctuated from time to time, but many of our brokers have worked with us from the day we first opened our doors for business. By working closely together, they get to understand the type of business we feel comfortable with and we gain experience of working with them. It's a business model which has worked very well for all concerned.”
Relying on broker’s experience and expertise means that Aldermore rarely deal face to face with brokers, but that does not mean they exclude them completely.
“We have nothing against working directly with borrowers! In fact, we do get the occasional case submitted directly to us, but our business is designed to work most efficiently via brokers,” he added.
“Brokers provide an essential client-facing sales, marketing and advisory role, leaving us free to focus on underwriting, lending and providing great service. It's a case of horses for courses and each of us focussing on what we do best.”
The good news at Aldermore has partly been sparked by the bad news coming from Europe and the USA. Rob Lankey continued:”There is no doubt that the problems encountered by the larger, traditional banks have helped to open a window of opportunity for new banks such as us. Aldermore is successful because we provide what brokers and borrowers want: competitive deals and a fast and reliable service.”
The property bridging loan market in London is also bucking global trends and showing signs of a ‘mini-boom’, against the backdrop of continued financial crises elsewhere, according to a new report from Montello Income Fund.
The London based real estate financier have released their latest quarterly report, which shows a rise in bridging finance being used as an option over more traditional lending. Furthermore, the core geographical focus area for the Fund (being the London residential property market) remains very strong.
The report came up with statistics, such as, an average 8.5 per cent annual return for investors, an average LTV of 51 per cent across the Fund’s portfolio. Eighty-Two per cent of the Fund is being lent against properties in London and lending against residential properties makes up 81 per cent.
Christian Faes, Managing Director at Montello, was enthused by the report’s findings and the effect it has had on business at Montello’s bridging finance department: “The current market situation, has meant that we continue to see a huge volume of borrowers that are being let down by the high street banks. As a result bridging finance has moved to the mainstream,” he said.
“This has allowed us to lend to a very high quality borrower against prime property in London, providing investors with a superior risk adjusted return.”
These two success stories are a good example of how diligence and knowing your customers can mean trouble on the global markets does not necessarily mean disaster for all.

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