ABA Corpororate Member Mishcon de Reya has published its 'Enforcement Watch' for January 2018, detailing several recent regulatory actions and notifications, and highlighting issues that are appearing on the horizon. It's essential reading for those working in financial services in the UK.
Gatehouse Bank plans expansion into retail finance
For ten years, Gatehouse Bank has been a fixture of the London banking market, but in recent months the bank has hired a new CEO and senior executives and announced a new initiative to offer retail home financing alongside the commercial property financing that it has become known for.
Andrew Cunningham, the Arab Bankers Association Editor, asked Charles Haresnape, Gatehouse’s CEO, to explain the bank’s new strategy and how it will position itself in the London market.
ARAB BANKERS ASSOCIATION: Why has Gatehouse Bank decided to expand into the retail financing market?
CHARLES HARESNAPE: First of all, let’s be clear that we are not getting out of commercial property finance. We are going to continue expanding and developing our commercial financing strategy, and our property advisory service, which is an offering that enables customers to invest in commercial properties, but we have decided that there is an opportunity to develop a substantial new line of business in retail property financing.
What type of retail property financing will you be doing?
We’re going to offer buy-to-let finance, both on individual properties and to investors who hold a portfolio of properties – we have already started offering this – and we plan to offer Home Purchase Plans (HPP) for properties in the UK for UK residents, for expatriates who are currently living outside the UK, and for people who are permanently living abroad but want to own property in the UK. We have already held extensive consultations with the regulators about our plans for HPP, and we hope to launch the product soon.
We plan to use our broker networks to source business from all over the UK. We’ll be happy to finance residential properties in London, but we are not aiming to build a portfolio that is based on London property. We are a British bank and we intend to finance property throughout the country. For that reason, we intend our threshold for financing requests to be for properties valued at £50,000 – tiny by London standards, but not in many other parts of the country.
Will you only be offering Shari’ah-compliant financing?
We have always been a wholly Shari’ah-compliant bank and we will continue to be so. We see a huge opportunity for Shari’ah-compliant mortgages in the UK both for Muslims and for non-Muslims who are attracted by an alternative way of doing business that has a strong ethical component.
The Shari’ah financing contracts for mortgages – such as ‘diminishing musharaka’ – are now well established and can be used both for ‘repayment financing’ and for transactions in which the client wants to pay only the rent cost – the Shari’ah equivalent of a conventional bank’s ‘interest only’ mortgage. There is no reason why Shari’ah-compliant finance cannot meet the same customer needs and preferences as a conventional mortgage.
Furthermore, what we at Gatehouse will be offering is state-of-the-art processing systems that enable us to bring combined broker-friendly origination and electronic verification with individual review of every application by one of our loan officers. The key for excellent customer service is the combination of systems and experts.
We opened a new customer service centre in Milton Keynes on 31 January. We’ve hired new senior executives to oversee our Shari’ah-compliant finance business – as well as the staff for the customer service centre – and we’ve recruited a new Board member who has expertise in the residential mortgage sector.
What are your plans in the commercial property sphere?
We will continue to finance existing properties across the UK. We don’t intend to finance greenfield developments or construction. All of this financing will be held on our own balance sheet – we won’t be relying on securitisation for balance sheet growth. We will look to finance commercial facilities typically up to £10 million.
We will also continue with our Private Rental Sector (“PRS”) investment funds. We currently have two funds which together are invested in about 1,500 property units in the UK. Our typical model is to buy several units from a large development, outsourcing the management of the properties to third parties. We see a lot of opportunities in this area because the UK government is trying to diversify and increase sources of finance for residential property development, and generally increase housing supply.
How will the shape of your balance sheet change in the years ahead?
We will expand our retail finance and deposit taking business at a faster rate while still growing our commercial finance business. Our balance sheet will grow in scale over the next few years, and we will continue to fund our growth from corporate and personal deposits.
We attract both the wealthy ‘private banking’ segment and the more modest savers – the minimum balance on our Milestone Savings brand is £1,000. The profile of our deposit base is quite similar to that of other banks in the UK. Retail deposits will become our primary source of liquidity.
How are you managing your expansion internally?
Over the last few months, we have made a number of new additions to our senior management team. Since I arrived in May last year, we have brought in a new Chief Commercial Officer, a new Chief Operating Officer and a new Head of HR. We also promoted our Head of Finance to Chief Financial Officer, and more recently we recruited a Chief Risk Officer.
Most of our senior team, including me, have a background in ‘challenger’ banks. We have experience of growing a business quickly but sensibly, and we bring a ‘can do’ attitude to our work.
We’ve also added to our Board through the recruitment of Andy Gray as a non-Executive Director. Andy has decades of experience in the UK mortgage market, both with Barclays Bank and as a Deputy Chairman of the UK Council of Mortgage Lenders.
What role are you shareholders playing in this transformation?
Our shareholders are fully behind our move into retail mortgage financing. They want to see material progress in the development of that business by the end of 2018; they want to see that we are maintaining excellent relationships with our regulators, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA); and they want us to generate a healthy rate of return.
But our shareholders, and we as managers, are clear that Gatehouse is here to become a significant UK-domiciled bank, supported by institutional overseas shareholders. We are not a branch or subsidiary of an overseas bank.
Our two biggest shareholders are Kuwait’s state-owned Investment Fund, the KIA, and the Securities House. Three other Kuwaiti banks are shareholders. All of them know the London market well and if they wanted to be based here themselves, they would be – and, of course, KIA has had an office in London for decades through the Kuwait Investment Office.
So, in summary, we are not a ‘consortium bank’. Nor are we a subsidiary or branch or a foreign bank. We are a British bank, operating throughout the UK, developing a book of British business. That makes us very different from most of the other banks in the UK that are offering Shari’ah-compliant products.
We are very confident that our new strategy will enable more people in the UK – both Muslim and non-Muslim – to access Shari’ah-compliant financing and to deploy their savings in a Shari’ah-compliant manner, and we are confident that this will bring benefits to our shareholders and to our wider stakeholder community.
Gatehouse Bank’s Head Office is at 14 Grosvenor Street, London W1K 4PS. www.gatehousebank.com
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