Going for growth beyond SA: FirstRand makes £1bn play for UK challenger bank

EDINBURGH — South African banking giant FirstRand has made a £1bn play for Aldermore, a challenger bank that is disrupting the UK banking sector. It is now evident that the biggest lender in Africa by market value, Johannesburg-listed FirstRand has ambitious plans to grow outside Africa. FirstRand already has a vehicle finance business in the UK. South African investors didn’t appear to like the sound of the Aldermore acquisition, with the FirstRand share falling in Johannesburg. But investors in Aldermore gave the possible purchase a vote of confidence, with the London-listed firm’s stock rising on the news in its biggest jump in two years. – Jackie Cameron

By Donal Griffin and John Bowker

Bloomberg – FirstRand Ltd., Africa’s biggest lender by market value, offered to buy U.K. challenger bank Aldermore Group Plc for about 1.1 billion pounds ($1.4 billion). Shares in the British firm soared.

Aldermore received “an indicative proposal” from Johannesburg-based FirstRand of 313 pence per share, 37 percent more than its average share price this year through Thursday, and directors at the U.K. lender are likely to recommend a “firm offer at this level,” the Berkshire-based bank said in a statement Friday. The South African bank, which already has an auto-finance business in the U.K., confirmed its approach in a separate statement.

Johan Burger, chief executive officer of FirstRand Ltd., speaks during a meeting in Johannesburg on June 18, 2015.  Photographer: Dean Hutton/Bloomberg

FirstRand Chief Executive Officer Johan Burger is looking to build revenues beyond South Africa, the bank’s biggest market, as political instability under President Jacob Zuma batters confidence in the economy. That could spell a payday for Aldermore shareholders, who are among the hedge funds and billionaire investors who flocked to so-called challenger banks in the U.K. in the wake of the financial crisis.

“FirstRand has been assessing opportunities to build a sustainable long-term deposit franchise to fund its strategy to grow and diversify the revenues of its current U.K. business,” it said. The possible Aldermore purchase, “with its unique operating model, market positioning and strength in deposit taking, would provide the ideal platform for FirstRand to fulfill this strategy on an accelerated basis.”

FirstRand is looking to shore up finances at its U.K. auto-finance business, known as MotoNovo, as regulators and analysts signal concern that the industry is overheating. The bank funds much of these operations through securitisation, the process of pooling loans into tradable securities and selling them to investors, and is seeking a more stable alternative, UBS Group AG analysts wrote in a note to clients Oct. 11.

The transaction is subject to a number of conditions and there is no certainty a firm offer will be made.

Shares in Aldermore climbed 19 percent to 304 pence at 12:54 p.m. in London trading, the highest in more than two years. FirstRand fell as much 1.4 percent in Johannesburg trading.

Aldermore raised 226 million pounds in an initial public offer in 2015. The bank is part of a handful of challenger banks trying to poach customers from Britain’s four biggest lenders, which control the bulk of the market, by offering quicker lending decisions and more personalised customer service.