Barclays ( BCS Quick Quote BCS - Free Report) gained 3.7% on NYSE in response to the announcement of an agreement to acquire a specialist residential mortgage lender – Kensington Mortgage Company Limited (“KMC”). The deal, valued at £2.3 billion ($2.8 billion), will strengthen the company’s “product offering and capabilities in the UK mortgage market,” boost market share and capitalize on its low-cost funding base. Matt Hammerstein, CEO of Barclays Bank UK (through which the deal is finalized), said, “The Transaction reinforces our commitment to the UK residential mortgage market and presents an exciting opportunity to broaden our product range and capabilities.” Deal Details & Benefits
Based in Maidenhead, the U.K., KMC uses proprietary technology, data analytics and awareness to design products and make lending decisions. The firm mainly focuses on the self-employed and clients with multiple or variable income sources. Thus, Barclays will be able to reach out to more borrowers who are ignored by conventional banks.
KMC, which has more than 600 employees, also services mortgages of other parties. Notably, the firm doesn’t hold mortgages on its balance sheet, but following the closure of the deal (expected to occur in the fourth quarter of 2022 or first quarter of 2023), it will retain a major part of the mortgages that it originates. In the year ended Mar 31, 2022, KMC had originated nearly £1.6 billion of mortgages (excluding retentions). Further, BCS will acquire a portfolio of U.K. mortgages comprising mainly mortgages originated by KMC from October 2021 till the completion of the acquisition. As of May 31, 2022, this portfolio totaled £1.2 billion (consisting of roughly 70% owner-occupied and 30% buy-to-let residential mortgages) with a weighted average LTV of 77% at origination. The transaction, still subject to regulatory approval, will be funded by Barclays’ existing resources. It is expected to dilute the company’s CET1 ratio by almost 12 basis points (based on the CET1 ratio as of Mar 31, 2022). During the first quarter of 2022, Barclays Bank UK witnessed a rise in net interest income on the back of a growing mortgage portfolio. As of Mar 31, 2022, the mortgage balance was approximately $196 billion. The deal is likely to provide further impetus to Barclays’ mortgage business as it tries to boost market share in the U.K. Conclusion
Barclays’ cost-saving efforts are expected to continue supporting the bottom line. Also, its restructuring and business-simplifying initiatives will likely boost financials.
Over the past year, shares of BCS have lost 18.7% compared with the industry’s decline of 12.5%. Image Source: Zacks Investment Research
Currently, Barclays carries a Zacks Rank #3 (Hold). You can see
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