British bank Aldermore doubles profit as lending grows

Aldermore Group Plc's profit more than doubled in the first half of the year, beating expectations, as the up-and-coming British bank issued more mortgages and loans to small and medium-sized businesses. The bank's shares rose as much as 11 percent on Thursday to rank among the top gainers on the FTSE-250 midcap index. Aldermore, among a handful of London-listed banks set up to challenge the dominance of Britain's big five lenders, reported underlying pretax profit of 44 million pounds ($68 million) for the six months ended June.
It joined rivals Virgin Money, OneSavings Bank Plc and Shawbrook Group Plc in reporting a bigger first-half profit fuelled by a housing recovery and more lending to small and medium-sized enterprises. An 8 percent surcharge on profits above 25 million pounds could slow the momentum of these banks when it comes into effect from January 1. The British Banking Association has said the levy could reduce annual lending by up to 10 billion pounds. Aldermore Chief Executive Phillip Monks said he aimed to mitigate the impact of this surcharge. He did not give details about how the bank planned to do this.
Aldermore, founded in 2009 and publicly listed since March, said it was on track for net loan growth of about 1.4 billion pounds, or 30 percent, for full-year 2015. With residential mortgages accounting for a large proportion of the bank's loan book, a rise in UK mortgage lending to a seven-year high in July has helped to underpin Aldermore's growth.
Challenges lie ahead: a recent survey from mortgage lender Nation-wide showed that British house prices rose this month at the slowest annual pace in more than two years. Britain is also preparing to cut tax relief on mortgages for wealthy buy-to-let landlords, a move designed to remove some of the advantages they have over people who buy their own homes.
Monks said the impact of these cuts to Aldermore would be "minimal" because the bank deals largely with professional landlords. Properties owned by so-called professional landlords are held in a corporate structure and therefore may not be subject to the cuts. Analysts lauded an improvement in Aldermore's underlying cost-to-income ratio - 53 percent for the first half of 2015 versus 64 percent a year earlier. Monks said he expects a ratio of below 40 percent in 2017. RBC Capital raised its rating on the stock to "outperform" and increased its target price to 325 pence from 300 pence. Aldermore's stock was trading at 303.58 pence at 1320 GMT, up 9.2 percent.