Lloyds Banking Group PLC (LSE:LLOY) and Shawbrook Group PLC (LSE:SHAW) are exploring a potential takeover of challenger bank Aldermore, according to reports, in a move that would add to a growing wave of consolidation across Britain's banking and financial services sector.
Sky News reported that Lloyds has begun preparations for a possible offer for Aldermore (AIM:ALD), which is owned by South Africa's FirstRand and has been put up for sale amid uncertainty surrounding the motor finance mis-selling scandal.
Lloyds was said to be attracted by Aldermore (AIM:ALD)'s small business lending and project finance operations, although a formal bid is not guaranteed.
Any deal is likely to be complicated by potential liabilities linked to motor finance compensation, with Aldermore parent FirstRand having set aside £750 million to cover claims, while the Financial Conduct Authority's proposed industry-wide redress scheme has prompted legal challenges from several lenders and manufacturers.
FirstRand, which bought Aldermore in 2017, announced in April that it would need to raise a further pre-tax accounting provision of £510m to cover costs faced by its car finance subsidiary MotoNovo.
The South African group called the UK scheme "disproportionate and unfair", but said it would work with regulators and Aldermore's board to facilitate an "orderly ownership transition".
The sale has also reportedly drawn interest from Shawbrook, a challenger bank itself, which returned to the London market last year.
Sky said a number of private equity firms are expected to review the business when a formal auction begins.
A successful acquisition would further reshape the UK banking landscape following recent deals including Santander UK's agreement to acquire TSB and NatWest's £2.7 billion purchase of Evelyn Partners' wealth management arm, as lenders seek greater scale and new sources of growth. Last October, Barclays announced an $800 million US deal to buy Best Egg, a US personal loan originator with a focus on prime borrowers.
