Paragon share price jumps as loan sale pushes up profits amid strong buy-to-let pipeline
Challenger bank Paragon today announced a "reverse profit warning" after it sold a portfolio of loans, while it also sees a strong pipeline of buy-to-let loans.
In an unscheduled trading update published today, Paragon said the premium for which it sold the assets will have a positive impact of seven pence per share on final earnings. Investors welcomed the news, with shares in the FTSE 250 lender rising by more than four per cent.
Paragon, which specialises in buy-to-let mortgages alongside personal savings and mortgages, also said the buy-to-let pipeline at the end of its financial year will be over 25 per cent higher than last year.
The lender has focused its attentions on the "professional" end of the buy-to-let market, protecting it from regulatory clampdowns. Some 90 per cent of applications are from professional landlords.
Ian Gordon, banking analyst at Investec, said the "reverse profit warning" will "nail the bear case predicated on the false premise that buy-to-let volumes are slowing".
Underlying profits for 2018 "remain in line with the Board's expectations", Paragon said, but it capitalised on "strong market conditions" to book the profits on the loan book, which were owned by Idem Capital, Paragon's portfolio purchase arm.
The rest of the assets in the Idem arm will be transferred to Paragon Bank, which will use its growing retail deposit base to fund the loans at a much cheaper cost. Paragon has now grown its retail deposit base to £5bn, it revealed today.
Nigel Terrington, Paragon chief executive, said: "The Idem Capital transaction and Titlestone acquisition in the final quarter of 2018 demonstrate the group's ability to refocus capital to support its growth businesses and enhance value for shareholders.
"In spite of the prevailing macro uncertainties we are well placed to benefit from scale economies in the commercial lending division, and the group continues to cement its position as a leading lender to professional landlords in the UK, underpinned by its 22-year history in this market. We look to the future with confidence."
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