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U.K. Challenger Banks Jump More Than 25% as Brexit Fears Fade

  • OneSavings Bank on-track for biggest weekly gain since IPO
  • Fears over the impact of Brexit on small banks are receeding

OneSavings Bank Plc, Aldermore Group Plc and Shawbrook Group Plc have each climbed more than 25 percent this week amid growing optimism Brexit won’t hurt the U.K.’s challenger banks as much as previously anticipated.

OneSavings Bank has climbed 30 percent, its best five-day performance since the bank was taken public by JC Flowers & Co. in June 2014, as it posted a jump in first-half earnings. Aldermore and Shawbrook rose after an analyst upgrade. Even after the gains, all three lenders’ stocks remain below where they traded before Britain voted to leave the European Union two months ago.

“There was a kneejerk reaction” as smaller lenders fell by almost half after the vote, said Ian Gordon, an analyst at Investec Plc. “People jacked up their impairment expectations and slashed their loan-growth expectations. There now needs to be some material revision on that.”

Bank of England Governor Mark Carney unveiled a 100 billion-pound ($132 billion) loan program for banks earlier this month to help offset lost income from lower interest rates as profit margins on loans narrow. The program will probably help small lenders more than major banks, analysts led by Michael Helsby at Bank of America Merrill Lynch wrote in a note to clients on Thursday, upgrading shares of Aldermore and Shawbrook to buy from neutral.

OneSavings Bank climbed to 291.8 pence at 12:08 p.m. in London, its highest value since the result of the referendum was announced June 24. The lender this week said first-half pretax profit jumped 36 percent as new lending increased 25 percent to 973 million pounds.

Aldermore, which is backed by Anacap Financial Partners and Toscafund Asset Management, jumped 27 percent this week, while Shawbrook rose 25 percent. Virgin Money Holdings UK Plc increased 11 percent on the week.

Analysts and investors have expressed concern that a Brexit-fueled slowdown in the U.K. economy would give challenger firms their first real test and stall their growth as loans soured. Executives at the firms since the vote say they see opportunity to gain share from larger rivals that are retrenching amid the uncertainty.

For more on how small U.K. lenders see growth potential after Brexit, click here

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