Bank North has now raised c.£30m of capital and secured its banking licence (24 August 2021). What was an uncertain “jam tomorrow” story will soon be generating income. Bank North will cherry-pick the huge, profitable SME lending market using state-of-the-art technology, and accessing the £20bn p.a. commercial broker market. It has been recruiting experienced frontline bankers, and central support and control staff. The pandemic has delayed delivery (by c.18 months), but the relative market position has improved. This gives confidence that a valuable business is being created. There is a current equity raise for retail investors on GrowthFunders.
- Model unchanged: Despite the market ravages of COVID-19, Bank North’s raison d’être remains unchanged. SMEs get poor service from big banks. Being a bespoke, regional bank, using experienced lenders, combined with technology and broker distribution, gives Bank North a huge, profitable opportunity.
- “Reality-check 2”: For our initiation, we did a detailed reality check of the assumptions behind Bank North’s plans. This time, we have “kicked the tyres”, and met with multiple frontline, operational and risk staff to test the theory in practice. This has confirmed our view that the plans are stretching, but realistic.
- Valuation: Given the range of outcomes, any valuation must be treated with caution. We provide a range of approaches (pp37-39) that, on average, indicate Bank North’s value in 2029 could be treble the equity raised. The value creation, like our forecasts, has been pushed back by c.18 months by the pandemic.
- Risks: Credit risk is key for any bank. Bank North has independent credit functions, some geographically close to the borrower, and its technology will align it to customers, by interfacing with their internal information. The model is yet to be tested, but it has many options to address any loan growth shortfall.
- Investment summary: Bank North’s model should be low-cost, and deliver a superior service to customers and intermediaries in chosen, niche markets. It has a conservative credit culture, and uses state-of-the-art technology, written from scratch, to originate, service and manage its business. Funding will be mainly via the deep, retail deposit market. The potential market is huge, profitable and under-served, and incumbents have become uncompetitive.