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Phillip Monks, chief executive of Aldermore, argues that he is helping customers ignored by the big financial names
"We're the new outfit in British banking that nobody has heard of," says Phillip Monks, Aldermore's chief executive. Then he leans back in his chair and roars with laughter. "In this banking environment that's a bloody good thing because these days people usually hear about banks for the all the wrong reasons: the credit crunch, fat-cat pay, government bailouts, mis-selling."
A former head of corporate banking at Barclays who drifted into finance after studying civil engineering, he loathes being unmasked as a banker at parties. "I was at a gathering after the royal wedding and someone asked what I did. When I said banking, the response was 'Oh god, you must be joking.' It's been a torrid time."
Aldermore is one of a number of new banks set up since the banking crisis, aiming to exploit public anger at the bigger players. Others include Metro, Haymarket Financial and NBNK, led by the former boss of Northern Rock, Gary Hoffman. "We're a small business and going through the same pains as many of our customers," says Monks. "You can't go out and throw a couple of million quid at television advertising or plaster your name across London's buses – we aren't awash with cash."
So how does Monks, who excelled at maths and science at his Cardiff comprehensive school, raise Aldermore's profile? "We market ourselves to brokers, mortgage intermediaries of one kind or another, accountants, even insolvency practitioners."
The bank doesn't own a branch network, but has six regional offices or support centres, as well as a website. It was established in 2009 with backing from private equity groups AnaCap and Morgan Stanley Alternative Investment Partners. Aldermore users money from savers to lend to firms or individuals that the big banks often shun: cash-strapped small businesses, mortgage borrowers turned away by conventional lenders, and savers looking for "more than a paltry return on their money". "When it comes to rates for savers, we are up there with the 'best buys'," claims Monks.
But isn't he going for customers who could be described as sub-prime? "Absolutely not, but the big lenders are only going for the top slice of credit quality in the UK because they want to conserve capital. That means a lot of customers with clean credit histories can't get mortgages – and that's where we come in."
Expanding
The bank doesn't offer current accounts, nor does it intend to. Monks says the majors have a stranglehold over that market, which infuriates him. "Customers should be able to shift their accounts to a different bank, so a current account with all its direct debits and standing orders can simply be moved across, taking the hassle out of switching. It's easy to open a bank account online without ever having to send your passport off in the post, or turn up at a branch with 15 utility bills and a reference from your parish council."
Aldermore is expanding quickly. In 2010, deposits rose by 176% to £633m, with the number of savers up from 8,500 to 30,000. Loans to small and medium-sized businesses doubled to £410m and that number is thought to have grown to over £600m by the end of April. Aldermore's balance sheet is expected to top £950m this summer, with liabilities more or less matched by assets. Monks expects Aldermore to break even this year or chalk up a small profit.
But not everyone believes new banks have a bright future in a world dominated by behemoths such as Lloyds, HSBC and RBS. John Peace, banks analyst at Nomura says: "Without a sizeable branch network, it's difficult to make your mark. Margins can be wafer-thin, [so] scale is a massive advantage. Not everyone can cater properly for small businesses, many of which demand quite sophisticated services, involving foreign exchange and hedging."
Monks says one way he competes with the majors is via speed of service. "Through us, you will get a decision on a residential or commercial mortgage within 48 hours. And I've got clients who are saying their applications have been with RBS for three months."
He thinks ministers could do more to help small banks such as Aldermore. "The government has billions sloshing around on deposit at the big banks, earning minimal interest. If they deposited some of that cash with me, my costs would be lower, our loans would become cheaper [helping SMEs] and I could compete more effectively. Here is an example of government favouring big banks, to the detriment of everyone else."