Shawbrook bounces back with help from Credit Suisse note

Shawbrook shares surged back 23% higher on Wednesday morning, helped by comments from Credit Suisse that the reaction to the UK's vote to leave the European Union which had seen the challenger bank lose over half of its value in the three days was "overdone".

Britain's exit from the EU has been predicted to hit banks with a lower-for-longer rate environment that will hit margins, as well as the potential for reduced growth, higher impairments and lower house prices.

On top of the implications from Britain's exit from the EU, Shawbrook on Tuesday revealed it had found irregularities in asset finance lending and announced that its chief financial officer had resigned after four years in the role.

Credit Suisse said it believed it was an isolated case, "rather than signalling a potentially broader weakness in historical underwriting standards which could lead to further such losses in future", as Shawbrook's local asset finance sales teams had previosuly but not longer were allowed to originate loans up to £300,000 without approval from a separate credit team.

Regarding Brexit, it has been predicted that banks large and small will be hit by the lower-for-longer interest rate environment, as well as the potential for reduced growth, higher impairments and lower house prices.

After the referendum fallout and Tuesday's news, Credit Suisse acknowledged the macroeconomic risks from Brexit by cutting its estimates for customer loan compound annual growth rate for 2015-20 by five percentage points, net interest margins (NIMs) estimates by a further 30 basis points to 5.12%
from 2018, and underlying earnings cuts of cira 9%, 30% and 38% for 2016, 201 and 2018.

However Credit Suisse's new target price of 235p, down from 380p, still offers strong upside.

With interim results due on 27 July, analysts said that: "We think any fuller discussion by management about their initial thoughts and plans to cope with Brexit, as well as any further details about their lending controls, would be helpful in rebuilding investor confidence."