Martin Flanagan: Revolving door spins again at Shawbrook

Shawbrook is expecting an additional impairment charge due to 'irregularities' in its asset finance business. Picture: Contributed
Shawbrook is expecting an additional impairment charge due to 'irregularities' in its asset finance business. Picture: Contributed
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It is what a new challenger bank needs like a major IT breakdown. An “irregularity” in its asset finance arm leading to a £9 million additional impairment charge. That’s the position Shawbrook, floated on the stock market last year, finds itself in.

The charge relates to a number of loans being underwritten that did not match the bank’s lending criteria. The amount is not material, and the situation is obviously containable as Shawbrook says it has upgraded its risk management and controls, and that both the Prudential Regulation Authority and Financial Conduct Authority are “satisfied by the actions we have taken”.

But two things make it not as straightforward as that. The flurry of challenger banks which have arisen in recent times have traded heavily in public relations terms on them not being tainted by the excesses and corner-cutting of the bigger, established banking players in the run-up to and since the 2008 financial crash. It does not help the holier-than-thou stance, however, to be tainted by dodgy debts even if there is no hint of criminality involved in Shawbrook’s case. Physician, heal thyself?

READ MORE: Shawbrook finds breaches in asset finance arm, CFO resigns

Perhaps even more important is a pervading sense of boardroom upheaval at Shawbrook 14 months after it took the stock market shilling, as a number of other challenger banks have done.

At the same time as yesterday’s announcement, the bank said chief financial officer Tom Wood has resigned to spend more time with his family, while praising his contribution to the business.

But Shawbrook, even though for varied reasons, has now changed its chairman, chief executive and finance chief since the flotation. That inevitably makes investors who bought into the float nervous.

Gary Greenwood, bank analyst at broker Shore Capital, is probably not untypical in the City in his response yesterday: “We have to admit that our confidence has been severely damaged by this news.”

At one stage yesterday Shawbrook’s shares, already under pressure like the whole of the publicly listed banking sector after the Brexit vote, slumped a further 28 per cent before eventually closing the session down 14 per cent at 140p.

That compares with its 290p flotation price. Some investor fence-building is necessary.