REG - Secure Trust BankPLC - Strategic pivot to increase Group ROAE

Secure Trust BankAnnouncement

02/07/2025 07:00

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RNS Number : 3094P  Secure Trust Bank PLC  02 July 2025

PRESS RELEASE

Secure Trust Bank PLC

2 July 2025

For immediate release

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

 

SECURE TRUST BANK PLC

 

Strategic pivot to increase Group ROAE

 

Secure Trust Bank PLC ("STB" or the "Group"), a leading specialist lender,
announces a pivot in its strategy away from Vehicle Finance that, over time,
is expected to improve its Return on Average Equity ("ROAE").

 

The Group announces it will stop new lending within its Vehicle Finance
business and put the existing book into run-off.  This decision reflects the
historical financial performance and medium-term outlook of the Vehicle
Finance business, both on an absolute basis and relative to other parts of the
Group, and its sub-scale nature.

 

On an unaudited pro forma basis, the impact to the Group's FY2024 financial
results assuming a completed run-off and the cost actions outlined below,
would be an uplift on adjusted profit before tax to £56.6m from £39.1m and
an estimated 800bps increase to Group ROAE(1) before any reinvestment of
released capital from the Vehicle Finance business.

 

The Group will continue to support its existing customers and loan portfolio
in Vehicle Finance.  As at 30 June 2025, the average consumer loan length
outstanding was 37 months.  The longest contractual loan agreement is 60
months.

 

Vehicle Finance generated a loss before tax pre-exceptional items of £21.8m
in FY2024, and its net lending balances were £558.3m as at 31 December 2024.
Vehicle Finance accounted for approximately 30% of the Group's adjusted
operating costs in FY2024. The Group will streamline its cost base as the loan
book runs down, enabling more than £25m of operating costs to be removed by
2030. Management has a strong record of achieving its cost reduction targets.

 

STB will consult with impacted colleagues, expecting 284 roles to be at risk
by 2030, including 78 roles at risk in FY2025. Restructuring costs of
c.£5.0m(2) are expected to be incurred. Vehicle Finance will be reported as
non-core activity in the FY2025 results and thereafter.

 

A further update will be provided in the Group's interim results for the six
months ended 30 June 2025, set to be released on 14 August 2025.

 

Optimising for Growth

 

The Group's FY2024 full year results announcement on 13 March 2025 stated
that, subject to no adverse changes in the economy and trading environment,
the Group was well positioned in the near term to achieve its £4 billion net
lending target, at which point it is expected to be at a scale to deliver a
ROAE of 14-16%.

 

The Group continues to make good progress against its strategic priorities of
Simplify, Enhance Customer Experience and Leverage Networks during the
year-to-date. This strategic progress has continued to drive our loan book
growth and cost efficiencies. The Group has traded in line with management
expectations in H1 2025.

 

Management has identified further opportunities beyond the strategic pivot
announced today that are expected to enhance the Group's ROAE above the
current target range over the coming years. The Group plans to increase
capital allocation to its Retail Finance, Real Estate Finance and Commercial
Finance businesses, which all have a strong track record of generating
attractive returns.

 

Further details of the Group's strategic plans and updated targets will be
provided in a capital markets event expected to be held in Q4 2025.

 

David McCreadie, Chief Executive Officer, said:

 

"The strategic repositioning of the Group, as we rapidly approach our £4
billion net lending target, marks another critical milestone in our Optimising
for Growth strategic framework.  We have made the difficult decision to stop
new lending in Vehicle Finance, our lowest return business line, and to
redeploy capital to our three higher returning businesses of Retail Finance,
Real Estate Finance and Commercial Finance."

 

"This pivot will allow the Group to prioritise these established specialist
businesses and achieves further simplification of the Group combined with the
removal of a significant level of costs.  These measures will have a material
positive impact on ROAE for the Group and will position the Group to being
capital accretive."

 

"We will be consulting with impacted colleagues to explain why this pivot in
our strategy will drive the future sustainable success of the Group."

 

The person responsible for arranging for the release of this announcement on
behalf of STB is Lisa Daniels.

 

Footnotes:

1. Pro forma Group ROAE has been estimated by reducing Group average equity in
FY2024 by the amount of equity capital allocated to Vehicle Finance average
RWAs of £441.1m. Exceptional costs of £8.4m in FY2024 related to Vehicle
Finance and have been added back to Group total profit before tax. No capital
reinvestment is assumed in estimating the pro forma Group ROAE.

2. Including £1.4m of accelerated 'software as a service' amortisation.

 

Enquiries:

Secure Trust Bank PLC

David McCreadie, Chief Executive Officer

Rachel Lawrence, Chief Financial Officer

Phil Deakin, Strategy and Corporate Development Director

Tel: 0121 693 9100

 

Investec Bank plc (Joint Broker)

Christopher Baird

David Anderson

Maria Gomez de Olea

Tel: +44 (0) 20 7597 5970

 

Shore Capital Stockbrokers (Joint Broker)

Mark Percy / Sophie Collins (Corporate Advisory)

Guy Wiehahn (Corporate Broking)

Tel: +44 (0) 20 7408 4090

 

Camarco

Ed Gascoigne-Pees, Geoffrey Pelham-Lane, Sean Palmer

securetrustbank@camarco.co.uk (mailto:securetrustbank@camarco.co.uk)

Tel: +44 (0) 7591 760844

 

 

Forward looking statements

This announcement contains forward-looking statements about the business,
strategy and plans of STB and its current objectives, targets and expectations
relating to its future financial condition and performance. Statements that
are not historical facts, including statements about STB's or management's
beliefs and expectations, are forward-looking statements. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future. STB's actual
future results may differ materially from the results expressed or implied in
these forward-looking statements as a result of a variety of factors. These
include economic and business conditions, risks from failure of clients,
customers and counterparties, market related risks including interest rate
risk, risks regarding market conditions outside STB's control, expected credit
losses in certain scenarios involving forward looking data, operational risks,
legal, regulatory, or governmental developments, and other factors. The
forward-looking statements contained in this announcement are made as of the
date of this announcement, and (except as required by law or regulation) STB
undertakes no obligation to update any of its forward-looking statements.

 

About STB

STB is an established, well‐funded and capitalised UK retail bank with a
72-year trading track record. Secure Trust Bank operates principally from its
head office in Solihull, West Midlands.   The Group's diversified lending
portfolio currently will focus on two sectors:

(i)            Business Finance through its Real Estate Finance and
Commercial Finance divisions; and

(ii)           Consumer Finance through its Retail Finance division.

 

The Group's medium-term targets, previously set in 2021 and revised in 2023.

 Medium-term targets                        2024 Actual  Target
 Net lending balance                        £3.6bn       £4bn
 Net interest margin                        5.4%         >5.5%
 Adjusted(3) cost income ratio              50.9%        44-46%
 Adjusted(3) return on average equity 8.0%  8.0%         14% - 16%
 CET 1 ratio                                12.3%        >12%

 

Footnotes:

3. Adjusted metrics exclude exceptional items of £9.9 million (2023: £6.5
million).

4. Performance metrics relate to continuing operations, unless otherwise
stated. Further details of the metrics can be found in the Appendix to the
2024 Annual Report and Accounts.

 

Secure Trust Bank PLC is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation
Authority.

Secure Trust Bank PLC, Yorke House, Arleston Way, Solihull, B90 4LH.

 

About Vehicle Finance

Vehicle Finance provides consumer lending products that are secured against
the second-hand vehicle being financed. It also provides a vehicle stock
funding product, which is secured against dealer forecourt used car stock;
sourced from auctions, part exchanges or trade sources. Finance is provided
via technology platforms, allowing Vehicle Finance to receive applications
online from introducers; provide an automated decision; facilitate document
production through to pay-out to dealer; and manage in-life loan accounts.

 

The Group's FY2024 full year results announcement on 13 March 2025 stated that
In light of legal and regulatory developments, including the FCA's ongoing
review of the historical discretionary commission arrangements ('DCA') in the
motor finance market (January 2024), and the Court of Appeal's judgment
(October 2024) which is currently under appeal, the Group had recognised costs
of £6.9 million (£5.2 million potential redress, £1.7 million costs, of
which £6.4 million was recognised as a provision) for both DCA and fixed
motor finance commission structures.

 

Group segmental audited financial information - FY2024(5)

 

 £'m                                     Retail Finance  Vehicle Finance  Real Estate Finance  Commercial Finance  Other   Group
 Interest income                         140.7           69.2             87.1                 29.8                39.2    366.0
 Interest expense                        (53.9)          (21.6)           (54.5)               (17.6)              (33.5)  (181.1)
 Net interest Income                     86.8            47.6             32.6                 12.2                5.7     184.9
 Fee income                              3.2             0.9              0.4                  14.6                0.1     19.2
 Fee expense                             -               (0.1)            -                    (0.1)               -       (0.2)
 Operating income                        90.0            48.4             33.0                 26.7                5.8     203.9
 Impairment charges                      (13.3)          (38.7)           (4.0)                (5.9)               -       (61.9)
 Other gains/(losses)                    -               0.1              -                    -                   (0.4)   (0.3)
 Fair value gains                        -               -                -                    -                   1.2     1.2
 Operating expenses                      (26.1)          (31.6)           (10.0)               (8.1)               (28.0)  (103.8)
 Profit/(loss) before exceptional items  50.6            (21.8)           19.0                 12.7                (21.4)  39.1
 Exceptional items                       -               -                -                    -                   (9.9)   (9.9)
 Profit/(loss) before income tax         50.6            (21.8)           19.0                 12.7                (31.3)  29.2

 Loans and advances to customers         1,357.8         558.3            1,341.4              351.0               -       3,608.5

 

Footnotes:

5. Per Note 3 of the Annual Report & Accounts 2024

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