Manx Financial Share Discussion Threads

[smithie6] 22/4/2024 11:30

I dont understand the concerns.
We all know that banks are geared & lend out most of the money that is deposited. The actual ratios for liquidity etc have to meet the regulations, as always.

Gearing, as we know can produce bigger gains, or bigger losses.

...the big increase in deposits (created by providing high % rates) was/is used to fund the rapid increase in lending

as far as I know there is no limit on the growth rate in deposits or lending as long as the other regulations are complied with, including % liquidity etc.
( for liquidity, recall that at the end of Dec. '23 £70-75m was held in Govt treasuries; a big increase on the year before).

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MFX's attributable PAT of £5.3m helps it for ratios, liquidity % & funding increased lending.

[castleford tiger] 22/4/2024 07:16

Tim
I think it’s the rapid expansion the regulator might have an interest in ( as a % of the overall business )
My contact is Yorkshire then Clydesdale and now Virgin.
He says they are not immune to regulators looking at sections of their business.
Some of the big insurers ( legal and G and Aviva ) do they DIY IT or use a 3 rd party provider?

[tim000] 21/4/2024 22:35

It’s certainly true that all banks have to pass stringent stress tests, to ensure they are viable in recessions and when house prices fall sharply. Metro bank struggled to pass such a test last year and thus had to raise new equity at an enormous discount to book value. I don’t know whether acquiring the remainder of PA would currently be vetoed by the regulator (PRA) on these grounds; if there were any such risk then MFX would delay the acquisition until the consolidated business had a sufficiently robust balance sheet. I imagine this would be the main concern of the PRA.

[castleford tiger] 21/4/2024 21:49

The one thing you all forget is the regulators.
They call the shots ( unbelievably ) on what can and can’t be done.
It’s the most regulated sector.
I don’t fully understand the powers that they have but it’s not so easy as to grow a division as the board may wish.
I am unsure how they control it but my banking friends tell me they can.
More so in the smaller companies.

Best Tiger

[smithie6] 21/4/2024 13:36

noted.

but, we dont know for sure...
...there is also the topic of conversion of loan notes...which I guess is a bit of an unknown since I think the rules perhaps prohibit conversion if it would mean the concert party (= JM + Gregory Bailey) increasing its % holding. If so then the concert party would need to announce a deal offloading the concerted shares at the same moment.
...(although I have little knowledge of the rules for this type of stuff.)

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let us think laterally for a moment
...if MFX wanted to do a significant expansion of PA Ltd or significant change of direction ....or a change that needed a notable investment....the 49.9% holders might see it as too risky & unneccesary for them to do to hit targets & get paid the £5m for the remaining 49.9%....

or if MFX wanted to bring in a third party to own a % of PA Ltd for entire A, B, C....

and for these cases the 49.9% might be opposed & the terms of the JV (it is a JV, a team) might allow them to block such a significant change in operation of the co.

...in which case, imo, MFX might be interested to do the aquisition in advance, to remove the opposition/blockage.
One never knows what the future might bring.

[stewy_18] 21/4/2024 07:54

I don't think anything will happen before 2027 Smithie. Just my opinion.

[smithie6] 20/4/2024 22:21

...yes, some way off...
...during 2027

(however, nothing stopping it happening at any moment between now & month X in 2027 if the 2 sides were to agree, which would not happen if it was detrimental to either side)

[tim000] 20/4/2024 18:08

Yes, the prospective acquisition of PA is why I follow the company. My recollection was that this is still some way off so there is no great upward pressure on the share price in the short term.

[smithie6] 20/4/2024 15:09

tim000

ignoring the pros & cons of the different parts of the accounts

the value of PA Ltd perhaps provides some downside support to the share price

if PA Ltd reports in 2027 a PAT of £2.5m averaged over the years '24,'25 '26 to justify being paid £5m for the remaining 49.9% of PA Ltd then if one gave that a valuation p/e of 10 then PA ltd would be worth £25m, the current valuation of MFX !

in 2023 the PAT for PA Ltd was £1.7m and roughly doubled from 2022, so it looks possible that the £2.5m/yr PAT could be achieved.

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...personally, I think there is a chance that the purchase deal for the 49.9% might be altered, in order to provide an incentive for achieving a higher PAT averaged over 3 years. To avoid any risk of PA Ltd giving up its growth aspirations if it achieves the £2.5m average in advance.

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another interesting item in the accounts is the spend on software for '22 & '23 combined. (was it £2.7m ?)
We have to wait to see if it can achieve a reduction in labour costs or in labour costs as a % of income (perhaps the same workers processing a bigger loan book due to use of more software automisation).

[smithie6] 20/4/2024 14:10

fees & comission expense

up by £4m, from £3m to £7m.

(recalling that attributable PAT was £5.3m, & including 100% of PA Ltd it was £6.1m)

so the increase in this cost was a massive negative hit to the profit.

How/why has this increased so much so quickly.
the accounts only say
"Fee and commission expense relates to commission paid to Brokerages which introduce new business to the Bank"

pretty pathetic explanation imo for a cost of £7m, up £4m.
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Might it reduce in 2024, or increase ?!

[smithie6] 20/4/2024 12:04

2022 Conister bank £231.4m
2023 Conister bank £352.5m
an amazingly big increase of ~120m !!

how much of this was due to IoM borrowers ?
net loan book £78m

structured finance
lending of £246m...big increase...
...but makes, imo, a tiny margin...while the cost of the banking function has gone up a lot due to wage rises due to inflation.
The group needs to imo
- reduce costs (unpopular but consider to close a branch or 2, or share a branch or 2 with other banks, or reduce hours or.....charge for some teller services (it is standard now in many countries)

- reduce the average % cost of the deposited money.
the "average" % paid is nuts imo !
(be good to compare it with what other banks are paying as an "average" %)

....obtaining deposits in the UK might help in that regard, over the medium term

- control the pay of the bod !! (+21% in 2023 !!)

- exert control on all costs. eg. banking costs rose in '23 to £0.9m

- increase the % of the loan book that is used by PA Ltd since it apparently produces a higher margin return

- achieve success & high growth with other subsidiaries that produce a high margin. so far I think this has never happened at any of them; except perhaps at the Fx venture.

246+78= £324m

[tim000] 19/4/2024 21:15

You’ve confirmed that bank balance sheets are complicated! But I do think that the company quoting 52% growth of the Conister loan book is slightly misleading, when it’s not allowing for write-offs.

[smithie6] 19/4/2024 21:02

impaired loans and expensed losses

different numbers

I guess this is because some loans are "temporarily impaired', but not written off or 'expensed'

loans (installments ?) which are late in being paid fall in different categories depending imo on how late they are.
to read all the info in the AR about that one perhaps first needs 3-5 cups of coffee to try to stay awake !!

[smithie6] 19/4/2024 20:56

"But I can’t see any figures disaggregated by each lending company"

...some of that info can be seen by looking at the subsidiary accounts.

more fun than one can shake a stick at !! :-(

[smithie6] 19/4/2024 20:53

...the subsidiaries all get their funds from Conister bank IoM I think

but I guess it depends on what numbers one looks at since loans from Conister to subsidiaries do not go out of the group & hence = 0 upon consolidation for the group accounts, but the group accounts will add up all the loans that go outside of the group, such as to clients on the IoM & from subsidiaries....&; to associate companies & to brokers/others.

[tim000] 19/4/2024 20:46

That’s not what Note 20 shows. But there are no doubt other factors at play, notably lending by subsidiaries other than Conister bank, which presumably declined in 2023 (ie your wholesale lending figures). But I can’t see any figures disaggregated by each lending company.

[smithie6] 19/4/2024 20:30

..I will take a look

but !!

overall the % for impairments was notably lower in '23 than in '22 despite a big increase in loans !!

(whether 24% or 53% increase in loans !)

in 2022 the impairments charge vs profits was £4.0m, while in 2023 it was £4.1m but for a much bigger loan book.

and hence that their lending appraisal process is working very well.

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Conister Bank Limited ("Conister") set a new lending record of £352.5 million (2022: £231.4 million), an increase of 52.3%"

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btw
loans
from page 45 of the final AR for 2023

2023 (2022)

wholesale £71m (£79m). 0 impairment
to public. £292m, (£ 210m). expensed £4.1m (£4.0m)

impairment loss on goodwill. £0 (£0.2m. IoM wealth mnmgt co)

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loans to customers
page 53 of the AR

2022 £291m
2023 £363m

increase = 363-291= £72m
= 25%

...this roughly agrees with the Edison report which gives 24% (number of decimal places & rounding off may explain the tiny difference)
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chairman's statement on page 4 includes this text
" augmented with ...........and a lower charge for provisioning and impairments."

but !!
as usual !! it appears that the chairman is telling porkies !!
on my calculator £4.1m is an increase from £4.0m, not "lower".

[tim000] 19/4/2024 17:55

Note 20 is worth studying. Gross unsecured household loans increased by £39mn (about 80%) in 2023. But they had to write off nearly £11mn of the book in 2023, so the net carrying value of household loans increased by only £35mn. So the effective interest rate earned on unsecured loans was reduced by about 10pp due to write offs. I don’t know what is normal for UK banks, but that doesn’t suggest their credit appraisal systems are ideal!

[tim000] 19/4/2024 17:34

PS I’m not a shareholder but have the company on watch!

[tim000] 19/4/2024 17:28

The consolidated balance sheet shows a 24% increase in the net carrying value of loans. The subsidiary, Conister bank, increased gross lending by 52%. Note 20 to the accounts suggests that at least one reason for the discrepancy is an increase in loan impairments in 2023, suggesting the 52% increase in gross lending by Conister is misleading, ie before impairments are taken into consideration.

[smithie6] 19/4/2024 14:02

the Edison analysis

the writer has been busy, lots of numbers, although a lot taken from the accounts.

2 items I note, the high average interest rate paid out on deposited money. crazy high imo, as an average. crazy. (as I already thought)

and growth in loans, says it is 24%, whereas I thought it was about 50%, need to double check the AR for that.
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AR says "Conister Bank Limited ("Conister") set a new lending record of £352.5 million (2022: £231.4 million), an increase of 52.3%"

while the Edison analysis says " Net interest income (NII) increased 33% and...through 24% loan growth"


If anyone is clever enough to understand why source A says "lending....+ 52%" while source B says "+24% loan growth" perhaps they would be kind enough to post.

[tiswas] 19/4/2024 09:24

Interesting. Even paid for research only seems to be saying that they should be trading 19% above where they are now!

I have only had a brief read too.

[spangle93] 19/4/2024 07:57

Link to Edison review of MFX, as per today's RNS



Have only skimmed it thus far, but goodness knows where they get the average sector P/E from in Table 11

[smithie6] 18/4/2024 15:59

small reminder

if anyone wants to vote via their broker they need to do it very soon, since there are not many days before the AGM.