[vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom”][/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom”][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid”][vc_column_text css=”.vc_custom_1557709445635{margin-top: 50px !important;}”]Across investor accounts, we have bought Clydesdale Bank (CYB), the UK based full-service bank focused on consumers and small and medium-sized enterprises (SMEs). The purchase was funded via the sale of Bank of Queensland (BOQ.ASX).

We are positive on the medium-term outlook for CYB for the following reasons:

  • CYB is well positioned to grow its loan and deposit book due to structural tailwinds for UK challenger banks, reductions in its capital requirements, its ability to source deposits at costs that are in line with larger incumbents; and leveraging opportunities arising from the recent Virgin Money merger
  • The UK government is looking to increase competition in the system. They are introducing a variety of incentives to help customers switch to smaller challenger banks;
  • CYB recently gained IRB (internal ratings-based approach) accreditation significantly reducing the capital intensity of the business as it reducing the risk weighting of loans. This means going forward it requires less capital to fund growth;
  • Deposit funding costs of the existing bank are broadly in line with large incumbents and well below other challenger banks meaning CYBG should have a pricing advantage vs competitors and should also be able to improve the profitability
  • CYB has significant balance sheet capacity to fund growth and should be able to increase its dividend payout ratio

We have funded the purchase through the sale of BOQ. BOQ’s recent result highlighted the pressures that increased funding costs and competitive lending environments are having on regional banks and we expect earnings to remain under pressure in the near term. The positive catalysts in CYB flowing from the Virgin Money (VMA) acquisition mean that we see CYB as a more attractive proposition.

As with all equity investment, CYB is not without risk. While the strategic rationale behind the VMA merger is sound, as with all mergers, there remains the risk that the value of merger synergies (e.g. economies of scale, best practice, the sharing of capabilities and opportunities) may be overestimated.

For more information refer to the CYB Company Snapshot attached.

If you have any queries, please contact SBB Wealth

[icon color=”Accent-Color” size=”regular” icon_size=”” image=”fa-file-text-o”] Download Company Snapshot – Clydesdale Bank[/vc_column_text][/vc_column][/vc_row]