investor presentation 14 october 2013 - secure trust bank€¦ · market dynamics - scale £m’s...
TRANSCRIPT
Investor Presentation 14 October 2013
PAUL LYNAM – Chief Executive Officer
Simple, straightforward banking
Agenda
• Competitive landscape Paul Lynam, CEO STB Group
• Strategic focuses
– Growth Jon Bowers, Group Head of Lending
Danny Malone, CEO Everyday Loans and Head of STB Personal Lending
Nick Davies, CEO V12 and Head of STB Retail Finance
– Sustainability and Safety David Nield, COO STB Group
– Being a great employer Anne McKenning, Group Head of HR
• Questions and wrap up All
PAGE 3
Simple, straightforward banking
PAGE 4
Strategy – Continues to Deliver
1. Protect the reputation and sustainability of the bank via prudent balance sheet management,
investment for growth and robust risk and operational control.
2. Maximise shareholder value by:
a. Strong organic lending growth.
b. Promotion of existing and development of new commission based income streams.
c. Very selective acquisitions.
3. Making Secure Trust Bank a great place for staff to work and enjoy progressive careers.
All underpinned by our philosophy of treating customers fairly and providing them with simple
straightforward banking solutions.
Simple, straightforward banking
PAGE 5
Bringing the corporate strategy to life…….
Grow a sustainable business by doing more of our current
activity, introducing new product lines & making new acquisitions
Safeguarding the integrity & sustainability of the Bank
Making this a great Bank to work for
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Competitive landscape
PAGE 6
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February 2013
• ….‘the financial crisis has strengthened the grip of “a few big banks”
whose market power “verges on an oligopoly…… “I want upstart
challengers offering new and better services that shake up the
established players”
George Osborne
PAGE 7
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All of these were standalone competitors 1/1/2000
Abbey National Alliance and Leicester Bank of Scotland
Birmingham Midshires Barnsley BS Bradford and Bingley
Bristol and West Britannia BS Chelsea BS
Cheltenham and Gloucester Chesham BS Cheshire BS
Clydesdale Bank Derbyshire BS Dunfermline BS
Egg Halifax ING Direct
NatWest Bank Norwich and Peterborough BS Scarborough BS
Stroud and Swindon BS Woolwich Bank Yorkshire Bank
PAGE 8
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Supportive Political and Regulatory indications
• Public acknowledgement that existing rules favour large banks.
• Potential for PRA / BoE to be given competition objective by
Parliament in addition to ones around safety and soundness of
financial system.
• More effective lobbying by smaller banks – Paul Lynam now chairing
Challenger Banks Panel for the British Banks Association.
• Labour proposing punitive levy on big banks to fund increased state
welfare.
• Changes to SME risk weightings from 1/1/14
PAGE 9
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Conduct headwinds faced by some competitors
• Previous mis-selling issues continue to absorb resources;
– Single Premium PPI
– Identity / Card theft insurance (CPP)
– Interest rate management derivatives
– LIBOR fixing
• Potential new reviews?
– Packaged Current Accounts
– Teaser rates
– Swiss Financial Market Supervisory Authority investigating Fx market
PAGE 10
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Other headwinds faced by some competitors
• Banking Reforms and Ring Fencing
• Sub optimal legacy IT systems require expensive updating
• Is Faster Current Account Switching a precursor to full account
number portability akin to mobile phone market?
• Is there a profitable long term future for full service branches?
• Basel III and CRD IV
– Much higher core equity tier one capital requirements
– Higher Systemic risk and capital conservation buffer add ons
– Leverage ratio limitations
– Dramatically greater reporting requirements
PAGE 11
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Potential implications of headwinds
• To rebuild reputation and mitigate the threat to profit / returns some
larger competitors might;
– Invest heavily in IT / Compliance / Audit and Cultural programmes
– Cut costs significantly
– Sell businesses / portfolios of assets
– Exit sub scale activities
– Pass on any increase in deposit costs to borrowers
– Reduce total amount of lending, especially in investment banking
PAGE 12
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Focus of other ‘challenger’ banks
Bank Market focus
• Tesco Insurance, cards, prime lending, mortgages, Fx
• Sainsbury Insurance, cards, prime lending, Fx
• Virgin Insurance, cards, prime lending, mortgages, Fx
• Aldermore SME & property lending, asset / invoice finance, mortgages
• Metro Competing head to head on service with high street banks
• Shawbrook SME & property lending, asset finance, secured lending
• One Savings Mortgages, insurance, secured lending
PAGE 13
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Market dynamics - scale
£m’s
Activity Market STB %
Lending secured on dwellings 1,267,811 0 0.00%
Consumer Credit 158,270 366 0.23%
Loans provided to SMEs 155,464 <2 0.00%
Overdrafts provided to SMEs 21,126 0 0.00%
Factoring corporation lending 7,904 0 0.00%
Data from Bank of England bank stat reports July 13 and STB H1 statements
PAGE 14
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Market dynamics – write off trends
PAGE 15
year Corporates Consumers Consumers Consumers
Loans to Non
financial
businesses
Loans secured
on dwellings
Credit Card
borrowing
Other
consumer
credit
2008 1,973 408 3,200 3,244
2009 5,619 984 4,117 4,527
2010 6,447 658 6,181 3,753
2011 7,600 589 3,643 2,622
2012 6,575 547 2,462 1,849
2013* 5,700 516 1,516 1,224
Data in £m from Bank of England bank stat reports July 13
* 2013 is H1 annualised
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PAGE 16
Growing Loan Book
CAGR of 78%
0
50
100
150
200
250
300
350
400
2008 2009 2010 2011 2012 H1 2013
£ m
Unsecured Lending Motor Finance Retail Finance Acquired and Other ELL V12
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Retail POS finance (15% of revenue1) (2010 9%) Motor finance (22% of revenue1) (2010 16%)
Fee-based accounts (19% of revenue1) (2010 57%) Unsecured lending (44% of revenue1) (2010 18%)
Diversifying revenue streams
Data from H1 2013 interim report . 2010 data excludes income from acquired Citi / LV portfolios PAGE 17
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£4.0m
£7.6m
£2.6m
£1.1m
£2.2m
£4.2m
£0.4m
PAGE 18
Diversifying revenue streams
Total income through lending and transactional channels is split as follows:
£45.2m £22.1m
H1 2012 H1 2013
This was presented net of £1m fee and commission expenses last year
£5.3m
£10.0m
£4.4m
£14.6m
£2.2m
£2.3m
£4.0m
£2.1m
£0.3m
Personal lending
Motor finance
Retail finance
Everyday Loans
V12
Current account
One Bill
DMS Income
Other incacquired portfolios
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PAGE 19
Recent Acquisitions
• New business volumes have increased and credit quality has remained stable.
• Investment in new offices in Belfast and Ipswich Q1 2013 and Edinburgh Q3 2013. More offices planned.
• Rationalising datacentre into STB facility to generate efficiency savings.
• Acquired on 2nd January 2013, V12 is a specialist retail finance provider based in Cardiff.
• V12’s strength in online finance will help bring new technologies and platforms to the STB Group, enabling the Bank to further develop its offering within the market.
• The first 6 months has seen the integration of the STB & V12 sales teams to deliver the growth in the retail finance sector.
• Lending volumes have grown by more than 40% since acquisition.
• Acquired on 15th January 2013 successfully integrated.
• Developed a significant new prospect pipeline which should begin to
deliver in H2.
• Commenced a number of IT projects which will significantly enhance the
efficiency and effectiveness of our activity.
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Summary
• Operating environment has been and is likely to remain conducive
to growth of well funded and strongly capitalised banks not
burdened by historic issues.
• Market is huge and supports significant numbers of competitors.
• Our 3 year growth focus is on;
1. Maximising potential of existing lending activities
2. Developing sustainable new growth engines
3. Very selective acquisitions
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PAGE 21
Our strategy
Grow a sustainable business by doing more of our current
activity, introducing new product lines & making new acquisitions
Simple, straightforward banking
STB Commercial Finance
PAGE 22
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Commercial Lending – SME landscape
• Approximately 45% of all those employed in the UK are employed by
businesses with revenue of less than £25m. (Source ONS and BIS)
• It is a business segment that has suffered most and continues to suffer from
a lack of liquidity from the larger UK banks (leading to under-investment).
• The ability to ‘structure’ customer solutions is the key driver to (a) developing
specialisms by asset class, product & market segments (b) achieving
sustainable margins (c) creating barriers to competitor entry.
• We will focus initially on two areas;
– Asset based lending
– Property
• Our approach will be highly selective (rather than capture all), risk aware
(priced accordingly) and with people, processes and platforms all fit for
purpose. PAGE 23
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Invoice Finance Landscape
• ABFA (Asset Based Finance Association) has circa 40 members (95% penetration)
• > 40,000 companies use a form of Invoice Finance, with exposure £15bn
• Market is split:
– High street banks have 65% market share / Independents have 35% market share
– Factoring represents circa 45%/50% customer by numbers but < 20% by exposure
• STBIF will typically operate in the £0 to £5m turnover sector of the market
• Currently 36,000 customers with £4bn exposure in the sector
• Typical industries are manufacturing, distribution, wholesale, service
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Invoice Finance competitive positioning
• Key to success is to leverage strength of bank with agility of an independent
– Major high street banks have cumbersome operating models which provide poor service
– Some independents provide good service but others have poor reputation / lack capital to grow
• Customers will be won via proven business developers, through mix of:
– Accountant generated (typically regional tier 2/3 firms) ...........estimated 45%
– Broker market ...........estimated 35%
– Self generated (data mining, customer/debtor intros etc) ...........estimated 20%
• Coverage will be in the major centres and will leverage the existing Everyday Loans
and STB infrastructure
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Simple, straightforward banking
Invoice Finance Management Team
• Managing Director
– Proven individual with appropriate industry expertise and professional standing
– Known to senior management of Secure Trust
– Start date TBA
• COO
– Proven individual with appropriate industry expertise
– Known to senior management of Secure Trust
– Starts 4 November 2013
• Target Regional Directors
• Proven individuals with appropriate industry expertise
• Well known to MD designate
Recruitment of broader team members will take place once operating platform is fully functional
PAGE 26
Simple, straightforward banking
Secure Trust Bank - Property Finance
• Capital values (i.e. collateral/asset values) are becoming more stable although focus
will be on better counterparties and prime assets in prime locations.
• Market is underserved as larger banks deal with legacy real estate portfolios.
• We are highly cognisant of the market risk on valuations/exit routes but there
remains selective good opportunities (ie this is not a volume focus).
• Our interest is in both investment and development, but predominantly commercial in
composition.
• Residential property investment will also be considered (i.e. where High Net Worth
individuals are involved).
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Motor Finance : Lending via dealerships and brokers
• Customers typically considered to be from
socio-economic groups C1, C2 and D
• Distribution through geographically spread
dealerships and centralised key accounts (i.e.
CL4U) and brokers.
• Primarily focused on used car market.
• On-going growth will be driven by;
– Speed and quality of service
– Relationships with introducers
– Product and distribution channel innovation
Max advance £15,000
Maximum term 5 years
Loan book progression
Competition
Key statistics
• We expect to see
competitors relaxing credit
criteria as economy
improves and will respond
to any threats this poses.
0
20
40
60
80
100
120
Dec 09 Dec 10 Dec 11 Dec 12 Jun 13
£m
Loan Portfolio
CAGR = 143%
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Unsecured lending: Lending direct and through affinity
partners and Everyday Loans Limited
• Unsecured lending to customers typically
considered to be from socio-economic groups
A - D
• Sources of business are internet, affinities,
brokers and cross-sell to existing customers
• Major banks are still restricting lending to their
own customers
• Pricing is rate to risk.
Active Max advance £15,000
Maximum term 5 years
Key statistics
Loan book progression
Competition
CAGR = 120%
• A number of
competitors
have reduced
their lending in
this market or
completely
exited
0
20
40
60
80
100
120
140
160
Dec 09 Dec 10 Dec 11 Dec 12 Jun 13
£m
Loan Portfolio
PAGE 29
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Personal Lending Growth opportunities
• Direct to Bank increased spend & customer acquisition
• Increased branch footprint for Everyday Loans
• Improved customer referral down product chain
• Portfolio acquisition
• Efficiencies through integrated systems and MI
• Product innovation
• Sourcing new affinity partners with a whole of market solution
• Targeted cross-sell to existing customers across all STB Group products
• Maintain tight fiscal discipline with pricing for risk and control of losses
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Retail finance: Lending solution for store based and
online retailers
• Targeting Prime Credit Profile Customers
typically from socio-economic groups A,B&C1
• Loan products mainly promotional credit
subsidised by retailers or suppliers
• V12 Retail Finance acquisition consolidates
sector leading position in:
– Cycles
– Musical instruments
– Online ‘e-tailers’
• Successful integration of V12 acquisition during
H1 2013 provides enhanced front & back end
platform for growth Active
Average advance £1,000
Average term 12 months
Lending Profile
Loan book progression
Competition
CAGR = 124%
• Limited signs of
new entrant
activity or
material growth
appetite from
existing lenders
0
20
40
60
80
100
120
Dec 09 Dec 10 Dec 11 Dec 12 Jun 13
£m
Loan Portfolio
PAGE 31
Simple, straightforward banking
Retail finance: Lending solution for store based and
online retailers
• Focus on controlled organic growth to sustain
current margins (‘more of the same’)
• Expansion driven by service based proposition :
– Multi Channel processing capability
– Experienced/professional Sales Team
– Market leading technology
– Ability to bespoke solutions relative to size
of Retail partner
• Consolidate position in existing core sectors via
enhanced service to retailers:
– Rollout of V12 Operating platform
– Expanded Account Management team
• Entry into new Sectors consistent with current
consumer risk profile:
– Season Ticket
– Home Improvements
Market Overview 2013 - est
• We estimate the Retail POS Finance market
expanded by 15% during 2012
• Market size set to benefit from any increase in
retail sales
• We do not disclose our annual volumes
0
200
400
600
800
1000
Other STB Ikano Barclays Laser Hitachi
Annual Lending Volumes
PAGE 32
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Our strategy
Safeguarding the integrity & sustainability of the Bank
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Funding and Capital strategies unchanged
• Funding
– Minimum 100% Deposit to Loan ratio with additional surplus funding accessible via FLS
– Maturity profiles broadly matched minimising maturity transformation risks
– Interest basis risk managed via use of fixed rate lending and deposits
• Capital
– Prudent surpluses above regulatory minimums
– Modest gross leverage ratios
– Vast majority in Common Equity Tier One ( core tier one equity)
PAGE 34
Year YE 2011 H1 2012 YE 2012 H1 2013
Core Tier 1 ratio 21.0% 15.0% 23.3% 17.0%
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Risk and Operational disciplines
PAGE 35
• Governance
– Established Board and committee structures
– Moving to blend of internal and external operational audit
– Significant investment in team and specialisms
• Risk
– Scorecard driven with defined policy validation were manual oversight required
– Deep dive review of each portfolio per quarter by input, process and outcome
– Established and tested BCP and DR
– Leaders physically close to the business, demonstrating the values
– Proactive approach to risk with ability to move operationally at pace
– Robust sector and product approval process
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Treating customers fairly
PAGE 36
• Philosophy
– Customer focus is at the heart of what we do and how our employees behave, not just one
of our core values
– Our products are consistently simple and straight forward in their design. We see this as a
competitive advantage.
– We seek for our products to offer value to our customer and an appropriate return for our
shareholders without the need for cross sell or subsidy
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Treating customers fairly
PAGE 37
• In action
– Savings
– We don’t entice customers with attractive introductory offers with the hope that the
deposits will remain after that offer expires
– When we reduced the rate of our notice accounts we extended the notice period we
gave to the customers to ensure that they weren't trapped into the account if they
wished to move their money elsewhere
– Lending
– New options for customer to choose due dates
– Extended period allowed for customers to bring arrears up to date before bureau
reporting
– Current Account
– No hidden or penal charges
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PAGE 43
Our strategy
Making this a great Bank to work for
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PAGE 44
Our strategy – Encouraging Personal Growth
Making this a great Bank to work for
• Structured induction and development framework
• Earn and Learn initiative
• Ifs university college and relevant professional qualifications
• Apprenticeships – internal and external
• Leadership Development Programme
Simple, straightforward banking
PAGE 45
Our strategy – Treating Employees Fairly
Making this a great Bank to work for
• Clear performance objectives aligned to our strategy
• Open, transparent and equitable remuneration framework
• Encouraging employees to have a voice
• Rewarding and recognising contribution
• Anniversary and key event awards
• We celebrate success
• Opportunities and support to progress
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Measures of success
PAGE 46
‘People state that they are treated equally and fairly throughout the organisation, and
appreciate the development that they receive both in terms of their training and also in
the assistance that they receive when they need support from the organisation’
‘There is a strong business planning process in place, with clear Vision, Mission and
Values effectively embedded within and throughout the Company’
‘People feel very committed to the organisation, recognising that it has a strong team
ethos, and there is significant pride displayed in working for the organisation’
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What next? – Our Aspiration
PAGE 47
Wrap up
PAUL LYNAM – Chief Executive Officer
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Secure Trust Bank - Invoice Finance
FACTORING CONFIDENTIAL INVOICE DISCOUNTING
• Assignment is fully disclosed to debtors
• Financier provides outsourced credit control,
cash allocation and debtor litigation services
• Financier sends statements and reminder
letters to debtors
• Debtor monies paid direct to financier
• Client assigns all invoices, financier maintains
an open item ledger
• Confidential arrangement
• Client handles own credit control, cash
allocation and dunning
• Debtor monies are paid to a trust account
which is controlled by the financier
• Client assigns all invoices on a bulk basis,
financier reconciles to customers sales ledger
on a monthly basis
• Typically aimed at new starts, smaller
companies, those with less sophisticated
systems or those perceived to be too high
risk for Confidential Invoice Discounting
• Some customers use Factoring just for the
service
• Suitable for companies with turnover
£750k/£1m and greater
• Customer must have good internal systems
for credit control, cash allocation etc
Both products can have bad debt protection added in (outsourced)
It is possible to have Confidential Factoring and Disclosed Invoice Discounting