OSB Group PLC (LON:OSB), the buy-to-let lender previously known as OneSavings Bank, sneaked out an announcement last night about exposure to potential third-part fraud.
The lender, which was scheduled to publish its results this week, said it is conducting its investigation into what it believes is an isolated incident as quickly as possible so it can publish its full-year results on April 8.
“Until the investigation has progressed sufficiently we will not know to what extent the receivable has been impaired, with a maximum potential credit loss of £28.6mln as at 31 December 2020,” the company said in a trading update covering 2020.
OneSavings Bank took a hit on a 29m£ fraud exposure - from one client in its "bridging finance and asset finance" business.
The evil creature in me can't help thinking "Greensill strikes again" but I might be totally wrong !
— JohannesBorgen (@jeuasommenulle) March 18, 2021
Excluding the impairment, underlying profit before tax is expected to fall to £366.2mln from £381.1mln in 2019. Broker Peel Hunt said that figure is about 16% higher than the consensus forecast, largely because of a “close to zero impairment charge” in the second half of the year.
The net interest margin (NIM) in 2020 was 2.47% on an underlying basis, close to company guidance of 2.5% but down from 2.66% in 2019, as it delayed passing on the base rate cuts to savers during 2020.
The common equity tier 1 (CET1) ratio, a measure of the bank’s balance sheet strength, improved to more than 18% due to additional profitability in the second half. The potential impact of a 100% impairment of the funding line receivable of £28.6m would equate to only a 0.2% point reduction in the CET1 ratio as at 31 December 2020, OSB said.
Based on its pipeline, current application levels and risk appetite, the lender currently expects to deliver underlying net loan book growth for 2021 of around 10%, although it added the caveat that the economic outlook remains uncertain.
Based on current pricing and cost of funds, it expects the underlying net interest margin for 2021 to return to 2019 levels and the underlying cost to income ratio to be marginally higher in 2021, as the ratio in 2020 benefited from higher income from gains on structured asset sales and lower discretionary spending in lockdowns.
“Our business model proved its financial and operational resilience in 2020,” claimed Andy Golding, the chief executive of OSB.
“Lockdowns inevitably impacted our business and we reacted by tightening our risk appetite to protect margin and credit quality over growth. I am pleased that applications have now recovered to near pre-COVID levels in our core Buy-to-Let and Residential sub-segments on tighter criteria and we have a strong pipeline of new business. We continue to control volumes in our more cyclical product lines, in accordance with the economic outlook and our prudent approach to risk management,” Golding said.
“Whilst we remain cognisant of the ongoing uncertainty over the true impact of the pandemic when government support comes to an end, the foundations of our business remain extremely robust. We have a very strong capital position and a resilient business model, all of which position us well to respond to the challenges and opportunities ahead and to deploy our resources to deliver attractive, sustainable returns to our shareholders over the long-term,’’ he added.
Peel Hunt said it was a “strong set of results tempered by potential fraud”.
“The structure of the loan in question is unique and management is confident this is an isolated incident,” the broker said.
“The company's ROE [return on equity] of 20% shows there is good value here if management can reassure about the potential fraud,” the broker said.
“New guidance that the 2021 NIM should return to around the 2019 level of 2.66% compares to our estimate of 2.64%. Loan growth in 2020 of 10% excluding asset sales is in line with guidance and the new target of 10% growth in 2021 is ahead of our estimate of 8%. We expect to upgrade income estimates for 2021 and future years,” the broker said.
Shares in OSB were down 4.7% at 440p in the first half-hour of trading.