‘Challenger banks’ OneSavings (OSB) and Charter Court Financial (CCFS) have inked their merger agreement and have belatedly come up with synergy savings totalling £22m by year three.

As already flagged, OneSavings Bank shareholders will own 55% of the combined entity while chief executive Andy Golding and chief finance officer April Talintyre will take over the same roles at the new group.

The aim is to create a specialist lender with greater clout in what management openly admits is ‘an increasingly mature and competitive’ market while tapping into Charter Court’s automation-enabled underwriting tools to improve efficiency.

Despite the commitment to maintain two separate distribution platforms ‘to create an enhanced proposition to the broker community’, management have identified pre-tax cost synergies amounting to £22m on an annual run-rate by the third anniversary of the merger.

A third of the savings are expected to be delivered in the first year and three quarters by the end of the second year although from an accounting point of view only 10% will be recognised in the first year and 40% in the second year.

These savings won’t flow through to shareholders in the form of earnings per share until 2021 however due to the increased financing costs the new group faces as a result of coming under the Bank of England’s rules on minimum requirement for own funds and eligible liabilities (MREL).

While it looks as though it is a done deal, with OneSavings having received pledges or letters of intent for around 48% of Charter Court shares, only 12% or thereabouts of OneSavings shares have been pledged the other way.

Indeed OneSavings shareholders might be wondering why their bank needs to merge with anyone given the strength of its loan book and its relatively healthy margins.

The full year results, which are also published today, show a 23% increase in loan growth to £9bn and a net interest margin of 3.04% which is well above those of big high-street lenders like Lloyds (LLOY) and Royal Bank of Scotland (RBS).

OneSavings also has the lowest cost-to-income ratio among UK banks at just 28% compared with 49% for Lloyds and a whopping 72% for RBS.

In fairness, if OneSavings feels it has to merge then Charter Court is the best option given its net interest margin is similar (3.08%) as is its cost ratio (28.7%).

These low cost ratios may be why the synergies from combining the two look paltry compared with most savings from bank mergers.

Given that the merger has already been telegraphed and the share swap ratio is fixed set there is no move in either share price today, with OneSavings sitting tight at 397p while Charter Court is flat at 325p.

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Issue Date: 14 Mar 2019