Atom Bank cut its annual losses for the first time despite growth being held back by the collapse of Neil Woodford’s investment business, which had been one of its largest backers.
Speaking ahead of the publication of Atom’s latest annual report, chief executive Mark Mullen said the app-based bank expected losses to continue to shrink this year even after coronavirus forced it to temporarily stop most new lending.
Atom reported a pre-tax loss of £66.5m in the 12 months to March 31, down from £80.2m the previous year. However, its balance sheet barely grew over the year, with total assets flat at £2.8bn.
Mr Mullen said the “distraction” of the Woodford failure limited the amount of capital available for expanding the business.
Atom is in discussions with shareholders about a fresh capital raise likely to be worth more than £100m. Mr Mullen said he expected to close a deal early next year, but added there was “no particular panic or urgency” given its current capital and liquidity levels.
Atom’s annual report noted that it had enough capital to support the bank for at least another year, and it did not follow other fintechs such as Monzo in warning about risks to its status as a going concern.
Its last capital raising, a £50m investment from funds including Mr Woodford’s Patient Capital Trust in July 2019, valued it at £530m.
The bank plans to re-enter the mortgage market next week — to take advantage of the sharp rebound in demand from homebuyers and reduced competition — after it was forced to halt almost all lending at the start of the coronavirus pandemic.
“Later this year and into next year we’re much more positive about growth prospects, notwithstanding the fact it’s still a pretty crazy world,” added Mr Mullen. “We’re looking to grow our mortgage franchise significantly.”
The bank’s optimism contrasts with many of its fintech peers, which have run into difficulties since the start of the crisis. Some of the most well-known digital banks, such as Monzo, relied on debit card transaction fees as their main source of revenue, which dropped precipitously as economies went into lockdown.
Atom, in contrast, has built a more traditional business model focused on savings and loans, and said it expected to benefit from a recent rebound in homebuying encouraged by a nine-month stamp duty holiday.
Many lenders initially stopped providing loans for new house purchases in March because of the practical challenges of carrying out property valuations and completing moves during lockdown. Banks have been slow to return to the riskier ends of the market even after the economy began to reopen, owing to fears that falling house prices could leave borrowers trapped in negative equity.
Atom will initially provide loans worth a maximum of 80 per cent of a property’s value, in contrast to its pre-Covid position of lending up to 95 per cent.
Mr Mullen said “there is no reason for us to be anything other than conservative [because] we don’t know where house prices are going to go”. He added that even at the slightly less risky end of the market, a reduction in competition was helping to improve profit margins.
Atom’s net interest income — the difference between what it earns from lending and pays out to savers — turned positive last year, coming in at £500,000 compared with a £2m net interest expense the previous year.
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