FirstRand has hired Bank of America and its own investment-banking arm, RMB, as advisers to help it sell its UK-based Aldermore Group and exit the European market, a spokesperson for the South African lender said.
The bank, among the continent’s biggest, is using a dual-adviser structure to broaden the pool of potential buyers for the UK-based specialist-banking subsidiary it bought in 2017.
FirstRand said in April that it would work on “an orderly ownership transition” from Aldermore after it was forced to more than triple how much it set aside to cover compensation for customers over claims they were mis-sold car loans in the UK.
The bank said in April that, although the group believes that Aldermore Bank is a sustainable business with a strong management team, it does not believe that it delivers the returns the group requires.
Thus, the business case for FirstRand to own and operate a UK consumer finance entity is not within the group’s risk appetite, it said.
Representatives from BofA declined to comment, while RMB didn’t respond to queries from Bloomberg.
FirstRand increased a provision to cover such costs from £510 million (~R11 billion) to £750 million (~R17 billion) after the UK Financial Conduct Authority finalised its redress plan in March.
Collectively, the industry has to pay about £9.1 billion to consumers, with 12.1 million loans eligible.
Lenders in the UK motor-finance industry, including Lloyds Banking and Close Brothers, had argued that the regulator’s proposals were too strict and failed to properly account for a Supreme Court ruling.
FirstRand has reiterated its view that the FCA plan is “unfair and disproportionate,” but has decided not to legally challenge the redress plan.
Aldermore Group comprises Motonovo Finance — a major provider of motor finance in the UK — as well as Aldermore Bank, which focuses on small- and medium-sized enterprise lending as well as residential mortgages, and has been part of FirstRand’s UK growth strategy since its acquisition.
Rising funding costs, regulatory pressures and increased competition in specialist lending markets have prompted several European and African banking groups to reassess their overseas holdings.
The lender’s overall business in the UK accounts for about 10% of its company-wide earnings and about 20% of its balance sheet, FirstRand has said previously.
By Adelaide Changole for Bloomberg, additional reporting by BusinessTech
