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Shawbrook’s £9m Plunge From Dodgy Lending

In June 2016, the Telegraph reported about Shawbrook’s historical mistake offering consumers low-quality loans and had to set aside a whopping £9million for their actions.

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Shawbrook Bank’s shares plunge on £9m hit from dodgy lending

Challenger bank Shawbrook has shocked investors by revealing one of its units has accidentally been giving out low-quality loans which break internal risk rules.

As a result, it has had to set aside £9m to secure against the likelihood of future defaults and losses on those loans.

It came as chief finance officer Tom Wood – who last year served as interim chief executive – announced he was stepping down, though the bank insists the resignation is not related to the problem loans.

Shares in Shawbrook tumbled by as much as 27pc on the news, before recovering to trade 9pc down on yesterday's closing price.

Shawbrook floated on the stock market in 2015 for 290p per share, and is now trading at 151p.

Shawbrook is a specialist bank which offers consumer lending, commercial mortgages, asset finance, secured lending and savings products.

It discovered the problems in its asset finance division, which typically lends money to small firms so that they can buy assets, such as machinery.

The bank said it found “irregularities in one office in the asset finance part of our business finance division”.

The problems affect Shawbrook's £14.7m credit facilities and resulted in the £9m charge against the chance of some of those loans going sour.

Chief executive Steve Pateman, who joined the bank from Santander last year, implemented the procedures for monitoring loans which discovered the irregularities.

“While this is extremely disappointing, the irregularities were identified by the upgraded risk management systems and controls we implemented earlier this year. They have been investigated thoroughly and appropriate action has been taken,” Mr Pateman said.

“Since the end of the year we have simplified our business model into three divisions with clear management lines, implemented an upgraded risk management framework and are confident that our disciplined approach to risk is fully embedded across the business.”

Aside from these losses, the chief executive said the bank was still growing strongly, with new loan levels in the second quarter up 35pc on the same period of 2015.

But analysts remain concerned about the breach of internal controls.

“Although management claims that this issue has now been addressed and that it is confident such an event cannot happen again, we have to admit that our confidence has been severely damaged by this news,” said Gary Greenwood at Shore Capital.

“While the valuation [on Shawbrook’s shares] looks somewhat undemanding at this level, a combination of Brexit uncertainty and our disappointment around today’s announcements leaves us with no option but to downgrade our recommendation to hold (from buy).”