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UK Challenger Bank Suffers Asset Finance Breach


A British bank revealed this week that it discovered a breach within its asset finance unit, and its CFO announced his resignation Tuesday (June 28) as new details surface regarding the irregularities of some loan underwriting practices.

According to reports, Shawbrook Group Chief Financial Officer Tom Wood announced his resignation as the bank revealed plans to book an impairment charge of about $12 million as a result of the breach in the second quarter.

Shawbrook described the matter as having found “irregularities in one office in the asset finance part of our business finance division.”

The bank said the charge relates to asset finance loans underwritten that did not meet Shawbrook’s lending criteria. In other words, the bank had been lending out what some reports described as “dodgy” loans. The impairment charge will cover what the bank expects to be financial losses resulting from probable defaults on those loans.

The bank’s asset finance operations provides loans to small businesses that are looking to invest in things like new machinery.

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

The departure of CFO Wood is unrelated to the matter, reports said.

Shares for the bank fell up to 28 percent following the announcement.

Shawbrook is a challenger bank in the U.K., having launched in 2011 as the industry and regulators look to increase competition in the sector. Reports added that revelations of loan underwriting irregularities only adds to ongoing challenges for these smaller financial institutions, especially in the wake of the Brexit vote.

Shawbrook has a 75 percent exposure to SME lending, reports said, and Citi analysts downgraded the nation’s challenger banks to “sell” following the referendum’s results.


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