Latest / The Business Case - with Mark Wharrier and Phil Clark / Season 2, Episode 11 – Interview with Ian Corfield, CEO, Secure Trust Bank

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Season 2, Episode 11 – Interview with Ian Corfield, CEO, Secure Trust Bank · The Business Case - with Mark Wharrier and Phil Clark

• 0:16
  SPEAKER_02: Welcome to the business case in partnership with the leading investor presentation hub Engage Investor.
• 0:22
  SPEAKER_02: This is the podcast where we dive deep into the stories behind the UK's leading companies.
• 0:28
  SPEAKER_02: I'm Mark Warrior.
• 0:29
  SPEAKER_00: And I'm Phil Clark.
• 0:31
  SPEAKER_00: And in each episode, we'll be sitting down with top business leaders to uncover their career journeys, the challenges they faced, and the insights that have shaped their success.
• 0:43
  SPEAKER_02: We have spent our careers analyzing and investing in UK companies, meeting managements to understand the business case.
• 0:50
  SPEAKER_02: And now we want to share those insights with you.
• 0:53
  SPEAKER_02: We will hear about the companies our guests lead and how they are positioned for the future.
• 0:59
  SPEAKER_00: But we also want to find out what makes these business leaders tick, the highs and the lows that they have experienced, and the lessons of management that might apply to your life.
• 1:11
  SPEAKER_02: Please remember this podcast is not investment advice and is for informational and educational purposes only.
• 1:18
  SPEAKER_00: Today's podcast we've got Ian Caulfield, the CEO of Secure Trust Bank.
• 1:23
  SPEAKER_00: Ian joined the business as CEO in the middle of 2025, taking on a business that had had a few ups and downs and has really done a lot to drive the business forward, simplify the group, and he's got a very clear strategic direction of travel for the business.
• 1:41
  SPEAKER_00: They've been performing well operationally, and the share prices had a good run, but this is a great conversation, really interesting.
• 1:49
  SPEAKER_00: And Ian does a great job of making a what can be specialist complex topic very uh easy to understand and very user-friendly.
• 1:58
  SPEAKER_00: So hope you enjoy.
• 2:07
  SPEAKER_00: Today we're delighted to be joined by Ian Caulfield, the CEO of Secure Trust Bank, one of the UK's leading specialist lending banks.
• 2:16
  SPEAKER_00: Secure Trust has been lending to UK consumers and businesses for more than 70 years, but the business is entering an important new chapter.
• 2:24
  SPEAKER_00: Ian became CEO in 2025 and has moved quickly to simplify the group, including the exit of the vehicle finance business and sharpen the strategy around higher returning areas of the bank.
• 2:35
  SPEAKER_00: The ambition is clear, a targeted growth for higher returns built around three core priorities product expansion, effective digital solutions, and capital discipline.
• 2:44
  SPEAKER_00: We're going to explore the economics of specialist banking, where the growth opportunities lie, the role of technology, and ultimately the opportunity to create significant greater shareholder value in this conversation.
• 2:55
  SPEAKER_00: Ian, welcome to the Business Case podcast.
• 2:58
  SPEAKER_00: Thank you.
• 2:59
  SPEAKER_00: Great.
• 2:59
  SPEAKER_00: So Ian, just to kick us off for our listeners who don't know Secure Trust Bank particularly well, can you give us a snapshot of the business today?
• 3:07
  SPEAKER_00: What makes a specialist bank different and where does Secure Trust fit within the UK banking landscape?
• 3:13
  SPEAKER_01: Sure thing, but firstly, thanks for having me on.
• 3:16
  SPEAKER_01: I've seen the list of sort of tenured leaders that you've had on this podcast.
• 3:19
  SPEAKER_01: So I feel like a bit of a Johnny Cum lately after me being at Secure Trust for 14 months.
• 3:24
  SPEAKER_01: But uh but equally, I hope some of the story about Secure Trust and what it's gone through over the course of the last year or so should be of interest to people.
• 3:32
  SPEAKER_01: We're now a simple and and growing business.
• 3:35
  SPEAKER_01: Ultimately, we do retail finance, business finance, and we're funding it with deposits.
• 3:40
  SPEAKER_01: But I guess what makes us a specialist business rather than a generalist is that inside those markets we're quite focused.
• 3:48
  SPEAKER_01: Uh we're focused on big ticket point of sale lending in our retail franchise, and our business finance uh area lends to professional property investors and mid-tier corporates.
• 3:58
  SPEAKER_01: And obviously, operating in those market spaces requires knowledge uh and a depth of data that you wouldn't have in a in a bigger bank.
• 4:06
  SPEAKER_01: Perfect.
• 4:07
  SPEAKER_02: Great.
• 4:08
  SPEAKER_02: Well, um before we dive into the bank, let's sort of touch on you as a leader and perhaps some of your first impressions.
• 4:15
  SPEAKER_02: Um you've um you spent much of your career in financial services.
• 4:18
  SPEAKER_02: You know, what what experiences um have really shaped the way you think about building and leading businesses?
• 4:25
  SPEAKER_01: Well, I I guess I'm fortunate to have uh worked with a bunch of great leaders in three different countries, and that that shapes you.
• 4:31
  SPEAKER_01: And equally, I guess I'm sort of unfortunate to have been old enough to have gone through both the financial crisis uh and uh and COVID.
• 4:39
  SPEAKER_01: Uh and I guess those things do ultimately inform how you then lead through different periods of time.
• 4:45
  SPEAKER_01: And I guess that the biggest thing that I've sort of taken from that, and and I guess having seen uh organizations not do it, is that you need to take the tough decisions in the good times.
• 4:55
  SPEAKER_01: Um because ultimately, if you're trying to take those tough decisions when the shit's already hit the fan, um then there's a there's a problem.
• 5:02
  SPEAKER_01: So uh I guess that's why I always try and make sure that I'm running sort of at pace at problems, um, because I know uh that at some point something's gonna come around the corner that's gonna make it much more difficult to deal with that um with that problem.
• 5:15
  SPEAKER_01: Um and I guess that's really informed how I sort of lead different businesses.
• 5:19
  SPEAKER_01: I guess the other thing I did very early in my career is I spent uh I spent a few years working in politics, uh, and that hasn't made my communication perfect, as we'll find out on this uh on this podcast.
• 5:30
  SPEAKER_01: Uh, but it has sort of informed uh I guess how important I think communication is uh in leading organisations, and and I think uh in financial services in particular, it's something that that's sort of underdone uh in the leadership of different businesses, and I think needs to be uh I think key for leaders across the whole sector.
• 5:49
  SPEAKER_02: So, what attracted you to Secure Trust Bank in particular?
• 5:52
  SPEAKER_02: What did you see in the business that perhaps wasn't immediately obvious from the outside?
• 5:58
  SPEAKER_01: Well, uh before I joined the business, I was at a private equity owned credit card business called New Day.
• 6:03
  SPEAKER_01: Um, and we'd actually uh quite a few years ago tried to buy V12, uh Secure Trust's retail business.
• 6:10
  SPEAKER_01: So I had a bit of insight from that experience of what a good business that uh that really was.
• 6:17
  SPEAKER_01: So I guess outside in, I had so I had some early knowledge and I knew um that whilst sort of Secure Trust got a sort of write-up as a as a generalist specialist bank, that under the surface it had this business that's well, it's really it's really a fintech uh insider bank that has managed to grow a very substantial franchise.
• 6:35
  SPEAKER_01: Uh it's now got 800 retailers uh on that platform, 1.3 million customers.
• 6:40
  SPEAKER_01: And when you look across the specialist bank sector, there's actually not many people who have got that sort of consumer franchise.
• 6:46
  SPEAKER_01: So I guess knowing that, I sort of thought, okay, well, this is uh you know, this is this is a real uh material opportunity.
• 6:53
  SPEAKER_01: Uh I didn't know the business finance and deposit areas, but I could sort of see again outside in from the published uh from the published numbers that they were in decent shape.
• 7:02
  SPEAKER_01: So I thought, hey, this is a business, yeah, it's got some edges, um, but it could really do something.
• 7:07
  SPEAKER_02: And in terms of the the early days, we talk about making decisions when you know times are a little bit more challenged.
• 7:13
  SPEAKER_02: Were were there two or three things that you really felt needed changing quite quickly when you arrived?
• 7:18
  SPEAKER_01: There were, and I guess if if I cast my mind back, uh, you know, it in no particular well, probably in a particular order.
• 7:25
  SPEAKER_01: Firstly, vehicle finance, I'm sure will sort of come on to talk about it, but that was a business that had been uh loss-making for for a number of years, uh, and it was clear that if we were going to be successful, we needed to address that.
• 7:37
  SPEAKER_01: Uh, secondly, in sort of getting into the organization, there were there were a bunch of sort of uh, I guess backlogs I'd say, in sort of programs, in audit actions, in stuff across the business that really needed to be uh to be addressed in order to get back to to sort of running running the firm.
• 7:54
  SPEAKER_01: And then finally, I sort of felt coming in that some of that was linked to the culture in the business.
• 7:58
  SPEAKER_01: There were some really good things about the business uh culturally, but there wasn't enough challenge and there wasn't enough pace, uh, and that meant that some of those things were sort of left unaddressed.
• 8:08
  SPEAKER_01: Because I think sometimes if you're if you're not prepared to have the uncomfortable conversations with each other, uh then you don't really get to the nub of what needs to be uh needs to be done.
• 8:17
  SPEAKER_01: So I really focused in the first few months on those on those key areas.
• 8:21
  unknown: Okay.
• 8:22
  SPEAKER_00: Great.
• 8:22
  SPEAKER_00: And uh if we just turn to the the role of the specialist lender, uh obviously the UK banking market's got you know a number of very large established incumbent banks.
• 8:32
  SPEAKER_00: So what what is the purpose, what is the need of a specialist lender?
• 8:36
  SPEAKER_01: Well, you know, ultimately I think the big banks have got a lot better over the course of particularly the last 10 years.
• 8:43
  SPEAKER_01: Um but the reason that we have we have specialist lenders is that is that if you're not focused uh on trying to deliver uh a different outcome for a quite niche set of customers, then you won't get it right.
• 8:55
  SPEAKER_01: And so, you know, in our case, uh obviously if you're running big ticket point of sale lender, uh big ticket point of sale retail, um, you've got to be quite focused on how are you underwriting that, how you're pricing it, how you're collecting against it.
• 9:08
  SPEAKER_01: It's a different niche.
• 9:10
  SPEAKER_01: And similarly, in business finance, looking after pro professional property investors, again, you've got to have a quite different outlook to one that you might have a more generalist uh business.
• 9:20
  SPEAKER_01: Uh I guess the other thing, and this is less of a secure trust uh comment and more of a sort of I guess macro comment, is if you look back to when I started my career, a lot of these specialist lenders uh wouldn't have existed because actually the big banks had a much broader risk appetite.
• 9:36
  SPEAKER_01: And I do think that we've got to ask ourselves how we've ended up as a country with a bunch of big banks that sort of take everyone's deposits and then lend them to quite a narrow group of uh uh of both uh consumers and uh and SMEs.
• 9:49
  SPEAKER_01: And I think that's you know that's great from my point of view because it creates opportunities for specialist banks, but I'm not sure that's the best structural answer for the uh for the UK.
• 9:58
  SPEAKER_01: That could be a podcast on its own, couldn't it?
• 10:02
  SPEAKER_00: Yeah, and it brings us back to a conversation we had in the first series with Nigel from from um from Paragon Bank, where he's obviously playing in that in that sort of niche market where where the the high street banks have essentially moved away from a from a risk perspective.
• 10:15
  SPEAKER_00: So just did drilling into that a little bit deeper then, Ian.
• 10:18
  SPEAKER_00: I mean, if we think about where your competitive advantage is versus the larger banks, I mean in in some sense you touched on them a minute ago, but just talk us through from an underwriting, you know, speed of decision, customer service, distribution, or just risk appetite.
• 10:32
  SPEAKER_00: Sort of how how do you kind of frame those criteria where you're thinking about competitive advantage?
• 10:38
  SPEAKER_01: So I think there's probably, you know, I think I think businesses that sort of uh churn out a whole list of competitive advantages are sort of are sort of kidding themselves.
• 10:46
  SPEAKER_01: Uh fundamentally, when I sort of look at secure trust, there's probably two sources of competitive advantage.
• 10:51
  SPEAKER_01: The first one is we've got we've got genuine and deep knowledge in the in the in the sectors that we're lending uh into.
• 10:59
  SPEAKER_01: And I guess look, when I when I turned up, I didn't know if that was going to be the case because some specialist banks talk a game about what they really know and and it's not quite there.
• 11:07
  SPEAKER_01: But I think we do genuinely understand uh our clients and we understand what they're trying to achieve, and we've got data through the cycle uh that looks at how how they've done against that.
• 11:17
  SPEAKER_01: So I think that's that that is a real source of competitive advantage.
• 11:22
  SPEAKER_01: And then I think secondly, and this is particularly true in our retail and deposit franchises, um, we've got at our core some really strong technology, and it's strong both in terms of it being uh sort of low cost to to run and control, um, but also it's competitive in that it's fast and flexible.
• 11:41
  SPEAKER_01: It's the sort of thing that you only really build, again, if you're in a specialist uh business.
• 11:46
  SPEAKER_01: Uh, and that capability allows us to deploy very quickly.
• 11:50
  SPEAKER_01: Uh, in in retail, we sort of we can get a new client on board inside 24 hours.
• 11:55
  SPEAKER_01: Uh, in uh in in deposits, we can change our pricing inside 90 minutes.
• 12:00
  SPEAKER_01: That sort of rapid deployment is is really powerful.
• 12:03
  SPEAKER_01: And then, secondly, it helps us keep uh clients because uh there's not a high cost to serve, as I say, in terms of maintaining those platforms inside their own system.
• 12:13
  SPEAKER_01: So I think those things, those two things give us a real source of competitive advantage.
• 12:17
  SPEAKER_00: I certainly know talking to some of the uh bank saleside analysts, they kind of pull the hair out of the legacy systems that the that the large-scale banks have as a as actually a competitive disadvantage.
• 12:26
  SPEAKER_01: I think that's right, and I don't want to uh get into bagging the big banks too too much, but I think you know sometimes when they sort of claim that they're the biggest fintechs in the UK, I think you know there comes a plausibility point um knowing what the systems are like inside some of those businesses.
• 12:42
  SPEAKER_01: Perhaps on a cost of maintenance basis, they are the biggest.
• 12:45
  SPEAKER_00: And then just thinking about the sort of the converse of this, which is scale.
• 12:49
  SPEAKER_00: I mean, there are clearly economies of scale and efficiencies of scale in in the banking industry.
• 12:54
  SPEAKER_00: So how how are you able to offset that as a as a maybe a potential headwind for you as a business?
• 13:01
  SPEAKER_01: There are, and that's it it is very true that business that banking is a is a scale business.
• 13:06
  SPEAKER_01: We're we're a three and a half billion pound balance sheet, hopefully grown to five plus over the course of the next few years.
• 13:12
  SPEAKER_01: But in in the scheme of UK banking, that still makes us uh uh pretty small.
• 13:17
  SPEAKER_01: Um I guess though, for me, whilst that is a sort of truism, um as I've sort of got into this business, I think two things have uh are equally true for us.
• 13:28
  SPEAKER_01: The first one is that is that what's changed obviously in the last four or five years is that is that being able to implement technology much more rapidly uh and efficiently means that you can gain some of those um some of those effects in terms of your cost efficiency uh much more straightforwardly than you would have been able to 10 uh 15 years ago.
• 13:47
  SPEAKER_01: So I think for us, as we look at uh, for instance, our cost to income um uh targets, um, we're targeting 35%, which would have been, you know, well, is in line with sort of sector peers.
• 13:58
  SPEAKER_01: So you're sort of like, okay, how can some how can a business at the scale of secure trust get to a cost to income ratio that's in line with sector leading peers?
• 14:07
  SPEAKER_01: Well, it's about making sure that those technology investments are put to bed uh really effectively.
• 14:13
  SPEAKER_01: So I think that's that's changed.
• 14:15
  SPEAKER_01: The second thing about our scale, and it's particularly uh, I think um important at times of of I guess macro dislocation like the one we're in at the moment, is that we don't have to at our scale be raising deposits every single month, month in, month out.
• 14:32
  SPEAKER_01: We can decide in in a month or in a in a in a quarter when it is we want to raise uh deposits.
• 14:39
  SPEAKER_01: And it's a two trillion pound market.
• 14:41
  SPEAKER_01: So very typically, if we need to raise 50 or 100 million in a month, we can be in and out literally over the course of a weekend or a few days and get the deposits we want and come back out.
• 14:52
  SPEAKER_01: That doesn't mean that we're sort of immune to uh rising deposit costs across the uh across the market, but it does mean at times when uh when swap rates are going up and down that we can pick our moment and go in.
• 15:04
  SPEAKER_01: Um whereas of course if we were if we were 10 times bigger than we are today, we wouldn't have that uh have that luxury.
• 15:10
  SPEAKER_01: So I think technology has sort of changed the outlook in terms of cost to income ratios, and but also the scale that we have does have some advantages for us as a business.
• 15:21
  SPEAKER_00: And when you were describing uh the the Opal business earlier, you were talking about you know being specialists, having deep sector knowledge, and obviously one of the benefits that flows through into is is underwriting.
• 15:32
  SPEAKER_00: As we become ever more sort of technology uh deploying more and more technology into the industry, how and AI and you know uh all the data points that you've got, how how does that competitive advantage of underwriting maintain?
• 15:53
  SPEAKER_00: And I guess is there a challenge that you have a incumbent challenger bank come up that can really underwrite with a with the all of the use of technology and and the insights that that potentially brings?
• 16:04
  SPEAKER_01: Well, I I think what advances in data science and then that's converged into AI I've given over the course of the last 10 years is you can get to uh a really strong underwriting approach faster.
• 16:15
  SPEAKER_01: So that that's that's clearly the case.
• 16:18
  SPEAKER_01: Um, and you can also obviously deepen uh your capability uh more rapidly uh as well.
• 16:23
  SPEAKER_01: Whereas uh I guess when I started in the industry without sounding like old father time, uh you were literally running models sort of overnight and coming back in the next morning to see what the update uh looked like.
• 16:34
  SPEAKER_01: So things have changed and you can get there much faster, which means as an incumbent, you can you can build uh those underwriting models more effectively.
• 16:42
  SPEAKER_01: However, the one thing that you can't do is create data from nothing.
• 16:47
  SPEAKER_01: Uh you can't make up data through the cycle, or if you do, it won't be a very good underwriting approach.
• 16:53
  SPEAKER_01: So I I think that your competitive advantage in the sense of having real data and the knowledge to apply that data, I don't think goes away, whatever the uh the technical capability you might have wrapped around your your scorecard or your underwriting approach.
• 17:09
  SPEAKER_00: And I know um in previous capital markets days you've had uh your some of your divisional businesses have talked about it's being a relationship business.
• 17:17
  SPEAKER_00: So do you think that continues as a competitive edge or how you at least think about running the business?
• 17:23
  SPEAKER_00: That sort of relationship-driven component?
• 17:25
  SPEAKER_01: Look, I I I think we've got some great relationships uh in the business.
• 17:29
  SPEAKER_01: I I'm you know, maybe this is controversial as someone leading a business bank, and like when people say their competitive advantage is is having a relationship, I I think they're they're sort of stretching the envelope at that point.
• 17:41
  SPEAKER_01: It's really critical, it's particularly critical uh in business finance because you've got to understand the person that you're uh building a relationship with.
• 17:50
  SPEAKER_01: So that don't go wrong, that is important.
• 17:52
  SPEAKER_01: It's important how you underwrite, how you structure, how you manage that relationship going forward.
• 17:57
  SPEAKER_01: Um, but ultimately uh our clients are sensible business people, so they're going to make rational decisions depending on what they get from uh different banks in a competitive market.
• 18:07
  SPEAKER_01: So we're focused much more on making sure that we build competitive advantage through giving them uh the service that they want, making sure that we can underwrite rapidly and using the fact that we're a small business and I can get, you know, there's three of us sat around this table today.
• 18:22
  SPEAKER_01: If I get three people together in Secure Trust Bank, I can make an underwriting decision, um, which uh which wouldn't be possible, I can tell you if you went to a big bank.
• 18:30
  SPEAKER_01: Yeah, no, for sure.
• 18:31
  SPEAKER_00: And just for our um our sort of non-banking expert listeners, of which we definitely have some, what what are the sort of two, three numbers that they should have in their own their own minds around thinking about how you're how you're being successful in driving shareholder value?
• 18:45
  SPEAKER_01: Well, the the the good news for sort of non-bank investors when they look at secure trust is that this is a pretty simple business.
• 18:52
  SPEAKER_01: Um, it's in areas of banking that I think most people would understand, um particularly most investors, um, and therefore you can look at some pretty simple uh numbers to get there.
• 19:03
  SPEAKER_01: Um, our our sort of medium-term targets say, okay, we want to grow the bank, uh, that's an important part of our sort of investor proposition by about 10% per annum.
• 19:12
  SPEAKER_01: And we want to make sure that that uh that lending is translating into returns for shareholders.
• 19:18
  SPEAKER_01: So we've said our return uh on on average equity is gonna be north of 16% by the time we get to 2028.
• 19:25
  SPEAKER_01: So if you sort of say, okay, that's where the business wants to get to, so what are the numbers I'm gonna look at in order to make sure they're there?
• 19:32
  SPEAKER_01: Well, firstly, what's the growth in net lending?
• 19:34
  SPEAKER_01: So we were at 5% at the half year, so obviously two times that is uh is 10.
• 19:40
  SPEAKER_01: Uh so you can sort of uh you can see the trajectory the business is on in that uh in that respect.
• 19:46
  SPEAKER_01: Uh secondly, where's our profit?
• 19:48
  SPEAKER_01: Uh are we in line with the with the consensus?
• 19:51
  SPEAKER_01: Uh um and we were just north of it uh at the uh at the half year.
• 19:55
  SPEAKER_01: And then finally, and we've started publishing this uh now, um, what's our return on required equity?
• 20:02
  SPEAKER_01: So the difference between return on required equity uh and return on equity is essentially we're carrying excess capital today.
• 20:08
  SPEAKER_01: So that capital will gradually get deployed as we as we grow uh and translate into a return on equity.
• 20:15
  SPEAKER_01: And at the moment we're at 14.5%, we're up by 60 basis points uh in the uh in the half, and that tells uh investors, I hope, that we're on a decent trajectory to that north of 16% we've said we'll get to.
• 20:28
  SPEAKER_01: So those uh those three numbers, what's happening to the growth in net lending, what's happening to profit, uh, and where is the uh is the return on equity, those three things should give um investors a pretty clear steer on the health of the business.
• 20:42
  SPEAKER_01: Perfect.
• 20:43
  SPEAKER_02: Well, we we'll dig into uh that organic growth and where it's coming from uh in a second, but let's just sort of step back for a minute because uh Secure Trust went through quite a uh a reset um you know over the last 12 months with the the decision to wind down and exit vehicle financing, which was taken before you you arrived, but obviously accelerated with the the disposal.
• 21:04
  SPEAKER_02: Um the decision to exit vehicle finance, you know, it's a it was a massive decision.
• 21:08
  SPEAKER_02: Um, but just sort of looking back, what fundamentally went wrong with that business?
• 21:12
  SPEAKER_02: And I guess what are the lessons that have been embedded into um kind of new secure trust, as it were?
• 21:18
  SPEAKER_01: Yeah, look, uh uh look back in a second.
• 21:21
  SPEAKER_01: I mean, from my point of view when I got in, I I actually really like vehicle finance as a market, and I'm sure that uh the people who decide to stay in post uh post the FCA remediation scheme will be in a good market because there'll be there'll be strong demand and probably uh a little bit less uh less supply.
• 21:39
  SPEAKER_01: Um, but from our point of view, and I guess it comes back to what we've been saying about specialist business, is if you're going to be successful in in vehicle finance, you've got to be able to price, to underwrite, to collect, uh, to use a technology platform that's uh that's flexible enough uh to do all of those things effectively.
• 21:57
  SPEAKER_01: And we just weren't in that place.
• 22:00
  SPEAKER_01: Um and as a result, when you sort of look through the numbers, um, we've been struggling over the course of six or seven years to turn this business around.
• 22:08
  SPEAKER_01: It never really got to the scale where it was covering uh its own uh its own costs and it couldn't get a lid uh on impairment, which was sort of going up and down across the uh across the cycle.
• 22:20
  SPEAKER_01: So I I think you know, whilst it was a difficult uh decision to sort of get there to to close it, because obviously a lot of colleagues were impacted as a result of that uh of that decision.
• 22:30
  SPEAKER_01: Um I you know it wasn't it wasn't that difficult a decision commercially because ultimately you sort of looked at it and said, are we going to turn this business around?
• 22:39
  SPEAKER_01: And I and frankly I didn't think our chances of doing that were very strong.
• 22:43
  SPEAKER_02: Now the the exit is uh freed up capital and you know provided uh you know more bandwidth to focus on where the business can create value.
• 22:52
  SPEAKER_02: How important has that that reset been internally in terms of the investment case?
• 22:57
  SPEAKER_01: It's been absolutely critical in terms of the investment case.
• 23:00
  SPEAKER_01: But I I guess just before you sort of get into because obviously if you're closing a business, you've got to say, okay, well, what am I gonna do with the with the capital?
• 23:08
  SPEAKER_01: But I think your your starting point always has to be is the capital being deployed effectively today?
• 23:14
  SPEAKER_01: Because actually there's a quite simple answer as to what to do with the capital.
• 23:17
  SPEAKER_01: If it's not being deployed effectively, you give it back to shareholders.
• 23:21
  SPEAKER_01: That's the that's the natural home for that uh for that capital.
• 23:25
  SPEAKER_01: Um but for us, uh I guess we were sort of sat there with the businesses I say that we looked in at in isolation and said this doesn't make sense.
• 23:34
  SPEAKER_01: But then with uh with uh with two uh other lending businesses in particular, where we said actually there's lots of opportunities in these businesses for us to deploy capital uh at a much stronger return.
• 23:47
  SPEAKER_01: So uh so it made therefore complete sense uh to sort of get out of uh get out of vehicle finance and look at how uh we redeployed that into those uh into those businesses.
• 23:58
  SPEAKER_01: And uh I I guess sort of winding forward 12 months, um the good news from my point of view is that that there are that those uh because you know it always looks good on a PowerPoint slide, um, but actually a lot of those uh additional growth opportunities are real.
• 24:13
  SPEAKER_01: Um but also what we've managed to do is to combine that with giving some of that capital back to shareholders.
• 24:18
  SPEAKER_01: So uh we're in, I guess, uh the lucky position to be able to continue to grow the bids business at double digits um whilst initiating a share buyback program uh that gives some of that capital back to um back to investors.
• 24:32
  SPEAKER_00: Well, we'll disaggregate those two points Ian and we'll take them one at one at one at a time.
• 24:36
  SPEAKER_00: Um and we'll maybe we'll start on the on the growth point because obviously that as you said a minute ago, you know, you're targeting double-digit organic growth.
• 24:44
  SPEAKER_00: Um on the lending book side, you you were running just north north of that on an annualised basis at the half year, so so clearly moving forward in the right direction.
• 24:53
  SPEAKER_00: You talked about targeted growth for higher returns.
• 24:56
  SPEAKER_00: I think that's one of the straplines from um from the CMD.
• 25:00
  SPEAKER_00: What does targeted mean in practice?
• 25:03
  SPEAKER_01: Well, I guess that language is reflecting the fact that actually in Secure Trust, we've got lots of different growth opportunities.
• 25:10
  SPEAKER_01: I could actually probably grow the business at about 20% uh per annum.
• 25:14
  SPEAKER_01: Now, I uh you know, I'm not sure that uh that everyone would sort of thank me for that, but but you know, that's the sort of starting point.
• 25:20
  SPEAKER_01: There's loads of growth opportunities.
• 25:22
  SPEAKER_01: So targeted growth for higher returns essentially says, well, instead of taking all those growth opportunities, let's take the ones that are gonna be truly accretive for the for the business.
• 25:32
  SPEAKER_01: Um, and I guess our our sort of product expansion strategy in particular is focused on making sure that we sort of broaden out the group of products that we might drive growth through, and then we select the products in any given point in a in a year, in a cycle, um, where actually we're gonna get the strongest return.
• 25:50
  SPEAKER_01: So that targeted growth point is absolutely critical because we're essentially saying, look, it's not it's not for us that we're completely stretching the business to get to 10%.
• 25:59
  SPEAKER_01: We could actually grow the business uh materially faster, but instead what we've selected to do is to grow at a growth rate that allows us to be accretive uh in tandem with that growth.
• 26:09
  SPEAKER_00: One of the perennial debates around most bank board tables is do we give a lending growth target or not?
• 26:15
  SPEAKER_00: Because there's obviously some h history in the industry about chasing growth for the sake of it, that then you lose some of your your your uh lending practices, your underwriting practices.
• 26:25
  SPEAKER_00: What was it?
• 26:26
  SPEAKER_00: I think previous management team had sort of stepped away from a growth target per se, you've brought one back.
• 26:32
  SPEAKER_00: What was the rationale for that for you?
• 26:34
  SPEAKER_01: I think for investors in the stock, I mean, look, if if you just want something that's got a 16% plus return on equity, you might as well buy a big bank share.
• 26:44
  SPEAKER_01: Yep.
• 26:44
  SPEAKER_01: Um, because that's where we are.
• 26:46
  SPEAKER_01: And I suspect whilst there's some cyclical ups and downs, they'd be able to maintain somewhere near that roe through the through the cycle.
• 26:54
  SPEAKER_01: They're in much better shape now than they they have been uh in the last 20 years.
• 26:58
  SPEAKER_01: Um but what I think they won't be able to maintain through the cycle um is a growth rate in double digits.
• 27:05
  SPEAKER_01: So I think a key thing for investors is is not just that the the returns are there, but also that the the the business is going to continue to grow and to create value through that.
• 27:16
  SPEAKER_01: So I think it's critical that we have those two targets sat alongside uh each other uh and that we drive the business on that uh on that basis.
• 27:25
  SPEAKER_01: It doesn't mean, and and frankly, I've been around long enough to have seen businesses that have uh just chased growth for the for the hell of it and let underwriting standards slip.
• 27:34
  SPEAKER_01: Um, it doesn't mean that that's what we're gonna do.
• 27:37
  SPEAKER_01: And I guess uh what I've always said to people is our North Star goal uh is getting north of 16% ROE and the and the 10% growth rate is subservient to that uh to that goal.
• 27:49
  SPEAKER_00: Yeah, and I guess I guess that it's the combination of the two, isn't it?
• 27:52
  SPEAKER_00: The fact that you've got your ROE target in there as well, which is keeping you honest in terms of what your your NIM is and your your um bad debt charges, etc.
• 28:00
  SPEAKER_00: Absolutely.
• 28:00
  SPEAKER_00: And just just drilling down a little bit more into your into your organic growth opportunities, um, as you said, you've got three three specialist lending uh segments, um, business units that you're operating in.
• 28:11
  SPEAKER_00: How much kind of as is business do you think you can deliver growth from those three areas rather than sort of and then we'll go into the second part of that, which is new product launches and adjacent product categories.
• 28:22
  SPEAKER_00: But just in terms of the existing footprint of the three businesses, how is that significant organic growth for you?
• 28:29
  SPEAKER_01: Yeah, I mean look, we we very deliberately not set a target per sort of product area, or either new new new or old, and that's because as I say, we want to make sure that we're selecting growth in areas where we get the strongest return.
• 28:40
  SPEAKER_01: But equally, uh, it's absolutely not the case that we've launched new products because the existing products have sort of run out of road.
• 28:47
  SPEAKER_01: Um and I guess you know, if I if I look at the at the two lending businesses in particular, um in our point of sale uh lending business V12, um, you know, we've got a very strong market share in both furniture and jewellery, um, but we've got a pretty low market share in healthcare, which is a market in itself that's uh that's growing.
• 29:07
  SPEAKER_01: So we've got lots of growth uh opportunities there.
• 29:10
  SPEAKER_01: Um and equally, uh, when I look at business finance, uh, you know, we've we're we're in a 90 billion pound market, uh just in terms of the market that we're addressing, uh, and we've got two billion pounds worth of lending.
• 29:22
  SPEAKER_01: So we've got loads of headroom there.
• 29:25
  SPEAKER_01: I uh what I'd also note though is that in terms of the sort of in terms of the macro, um I think we're we're at a time where retailers uh are increasingly using finance as part of their of their journey.
• 29:37
  SPEAKER_01: So I think you're gonna get natural growth in that point of sale, uh, in that point of sale lending market.
• 29:42
  SPEAKER_01: And when I look at business finance, particularly the property area of business finance, um, I think some of the changes that the government have made in terms of in terms of the renters' rights bill, um, I think that will see a lot of sort of, I guess, individual or sort of, you know, uh two or three buy-to-lets, those sorts of those sorts of investors, I think, are going to exit the market uh increasingly in favour of uh your professional property investors, and they are they are absolutely uh the sweet spot in terms of our clients.
• 30:12
  SPEAKER_00: Yep, avoiding the accidental landlord.
• 30:16
  SPEAKER_01: It's like you know, look, some people have got great businesses built on accidental landlords, so I'm not I'm not saying that, but I'm saying given our focus, uh that is, I think, a basic way you're going to see a real growth over the next day.
• 30:27
  SPEAKER_00: And you and you and you talked about kind of going into home improvement, you just mentioned health there for your for V12 business.
• 30:32
  SPEAKER_00: I think bridging finance is something that you've talked about for the real estate business.
• 30:37
  SPEAKER_00: What what what are some of the characteristics of those segments that appeal to you today that maybe didn't appeal to the business in the past?
• 30:45
  SPEAKER_01: Well, it's not that I think they didn't appeal to the business in the past, it's just that they didn't have the capital to go into those uh into those areas.
• 30:51
  SPEAKER_01: So I I think for me, and it's part of the attraction, they're natural adjacencies to our business.
• 30:57
  SPEAKER_01: And when we went through the the sort of, I guess, the strategic uh process of assessing which areas we might enter, um, for me, there were sort of three criteria I was applying.
• 31:06
  SPEAKER_01: The first one is is it driving a return north of our of our target?
• 31:11
  SPEAKER_01: Uh secondly, um, is it is it is it building on capability and I guess cost ultimately that we've already got inside the business so it's adjacent, so we can build on that without having to build some whole new infrastructure in order to get into it.
• 31:26
  SPEAKER_01: And then thirdly, is the market big enough that you don't have to believe some business case where you're going to get to 25% market share in order for it to go round?
• 31:36
  SPEAKER_01: And actually, uh in home improvements where we're very much building on capability that we already have, both in terms of underwriting uh technology and the sales team, uh, that's absolutely a case.
• 31:47
  SPEAKER_01: In bridging, actually, we've started out lending to existing clients because a lot of our professional property uh investors already have um that sort of business.
• 31:56
  SPEAKER_01: Uh, and in speciality finance, uh, we're building on uh capability that we already had uh in underwriting asset-based lending uh inside business finance.
• 32:06
  SPEAKER_01: So um all of them are adjacent in scale markets, uh, but in markets where I guess supply and demand is now whack, and therefore you can get uh returns um if you know what you're doing.
• 32:18
  SPEAKER_02: Well, let's talk a little bit more about technology, uh, digital data, AI, which is one of your strategic priorities.
• 32:26
  SPEAKER_02: Um, if you think about what what a bank does, you've got kind of customer acquisition, you've got underwriting, servicing, uh, credit losses, and then the kind of the back office cost base.
• 32:36
  SPEAKER_02: I mean, you know, where do you think technology can make um the greatest financial impact on those line items?
• 32:42
  SPEAKER_01: I I think it can make a difference across all those different items.
• 32:46
  SPEAKER_01: You know, ultimately we're uh we're we're in a place uh having sort of, I guess, run the business as a series of individual businesses where we've got uh we've got lots of different pieces of technology deployed across the across the group.
• 33:02
  SPEAKER_01: Um and so the sort of first things first, you're sort of like, okay, well, there's an opportunity to obviously reduce cost by bringing some of those platforms together and moving to some of the fantastic tech that we've got in some of our strategic platforms.
• 33:15
  SPEAKER_01: So that that will give us a sort of an immediate benefit.
• 33:18
  SPEAKER_01: And then on top of that, to the point that you make, is when you take out some of those sort of more manual processes or or sort of uh move away from non-besting class technology platforms, then you've actually got an opportunity to move further and actually improve the uh improve the customer experience, um, either in terms of your speed to market, although uh you know we're making decisions in in V12 inside six seconds, so I don't think the speed's gonna get faster.
• 33:44
  SPEAKER_01: Um, but you are gonna be able to deploy uh the data and the knowledge you've got more effectively through those um through those stronger platforms.
• 33:52
  SPEAKER_01: And that I think is the big advantage of us of us really focusing on on digitising the entirety of the bank.
• 33:58
  SPEAKER_01: As I say, there's big swathes of it that are already on very strong strategic digital platforms, um, but we've got to make sure that we take the whole business on that uh on that journey.
• 34:07
  SPEAKER_02: And in terms of your competitive edge versus you know larger banks, other specialist banks, you know, would you say it's proprietary technology that you have, or is it speed to market that you have uh as an advantage versus the competition?
• 34:21
  SPEAKER_01: Well, if I if I take V12, I think our proprietary technology is giving us speed to market.
• 34:27
  SPEAKER_01: So that for me is I think a case study.
• 34:29
  SPEAKER_01: It's sort of like, okay, that is a that's a fantastic business and uh I think has sort of embedded competitive advantage as a result.
• 34:38
  SPEAKER_01: I actually think that the the opportunity for us from a technology point of view in terms of markets um is what we do in business finance.
• 34:46
  SPEAKER_01: And and I I'm gonna make a sort of generic point here.
• 34:49
  SPEAKER_01: Uh the one sector of um of uh financial services that I think is pretty much uh still run the same in terms of in terms of technology today as it was when I entered the industry is business finance.
• 35:02
  SPEAKER_01: Uh it you know it's literally still largely manual, uh reliant on the sort of knowledge in the heads of other group of people.
• 35:11
  SPEAKER_01: I think that's cryptu, frankly, across uh business banks here in Australia it was the case in Ireland.
• 35:18
  SPEAKER_01: Uh so I think there is a very real opportunity for us to use technology um to take uh what I think we've already got in that business, which is really strong knowledge and and uh, as I said earlier, rapid decision making, and translate that through a technology platform into something where we can get to an answer for clients much more quickly.
• 35:40
  SPEAKER_01: Uh, today most business banks are still reliant on getting the sort of data from the client, applying their knowledge, putting that into a credit paper, the credit paper gets debated, uh, structures are built, and then you get to the back end of the process.
• 35:54
  SPEAKER_01: I'm sort of like, okay, well, how would you use digital and AI to make sure that that is a much more seamless experience so that you can bring the power of your knowledge and rapid decision making um really to the uh to the fore.
• 36:07
  SPEAKER_01: So I think that's the next big opportunity for us.
• 36:10
  SPEAKER_02: And presumably a more consistent uh experience from your role in terms of allocating capital to different books of business and loans.
• 36:18
  SPEAKER_01: I I think you'd get you'd get much more, much, a much easier and more rapid oversight because, of course, again, I think what most business banks are doing today is they're having to sort of interrogate individual credit papers uh in order to get back to the to the capital allocation rationale uh before they start looking at it at a sort of whole firm basis.
• 36:38
  SPEAKER_02: Yeah, but I also think the the technology behind the V12 business is amazing.
• 36:42
  SPEAKER_02: You know, somebody walks into a watch as of Switzerland, unknown to the customer, to the to the um you know to the to the business, buys a£5,000 watch, and within a few seconds your system has decided whether point of sale finance is gonna be available, right?
• 36:57
  SPEAKER_02: And there's a lot of technology and automation behind that.
• 37:00
  SPEAKER_02: Do you do you think we've sort of reached the end in terms of what can be automated in in V12, or is there more to go for?
• 37:07
  SPEAKER_01: Well, I think I've got a good insight as to the shopping patterns that you're uh demonstrating.
• 37:11
  SPEAKER_01: Uh look, I I I think the I think for me um the power is you're gonna bring AI uh to use the data that we've already got inside V12 and to make much more intelligent decisions.
• 37:24
  SPEAKER_01: Because of course, what we're able to do today is is to make a rapid decision and uh and we've got a really strong uh underwriting scorecard.
• 37:33
  SPEAKER_01: But of course, by its nature, there's too there are still some people that we're declining or accepting who aren't quite on the right side of those fences.
• 37:41
  SPEAKER_01: So I think the technology is going to bring more power to that uh to that decision.
• 37:47
  SPEAKER_01: Uh, and then when I look at the sort of future of that business, okay, we've got 1.3 million customers today, we'll grow it to about 1.5 million customers.
• 37:55
  SPEAKER_01: Um, but pretty much all of those customers have got one point of sale loan with us.
• 38:00
  SPEAKER_01: Um, it doesn't take a genius to sort of work out if particularly if you've got a very powerful digital platform with some intelligence behind it, um, that you might encourage some of those customers to take another point of sale loan or a different uh a different product with you.
• 38:14
  SPEAKER_01: And and that uh is a very real opportunity that we're looking at uh right now uh and I think unlocks what I think is the is the real value inside that uh inside that franchise.
• 38:25
  SPEAKER_00: Just pick, I mean, I I was gonna give an anecdote where I was actually gonna use a season ticket holder uh loan rather than Mark's uh very expensive watch, but uh I won't I won't reveal my colours for the for the podcast.
• 38:37
  SPEAKER_00: Um just building on that point before we go into the capital allocation topic, what one observation I've always had about Secure Trust Bank is that you're that you're very good at lots of things, but not necessarily building a brand because you're not really a brand-led business.
• 38:52
  SPEAKER_00: So I guess to to tap into Mark's point or your response to that, do you recognise that as a critique?
• 38:58
  SPEAKER_00: Do you feel you need more sort of brand-oriented mindsets in order to actually do that cross-sell to take advantage of that 1.3 million customer base?
• 39:08
  SPEAKER_00: Which, as you say, like that's a great asset.
• 39:10
  SPEAKER_00: Uh, there should be lots of other opportunities.
• 39:12
  SPEAKER_00: What needs to go right?
• 39:13
  SPEAKER_00: What do you what do you need to do internally in order to really tap into that cross-sell opportunity?
• 39:18
  SPEAKER_01: Yeah, look, I mean, I think that's a good description of the business.
• 39:20
  SPEAKER_01: It's actually uh, you know, this is good or bad.
• 39:23
  SPEAKER_01: Uh this business has got the lowest level of marketing spend of any business that I've ever run.
• 39:27
  SPEAKER_01: Yeah.
• 39:27
  SPEAKER_00: Um brand awareness is probably quite low.
• 39:30
  SPEAKER_01: Unprompted, it's relatively low.
• 39:32
  SPEAKER_01: Now, uh obviously the reason for that is that at the moment we are we are doing business with about a hundred business finance clients and eight hundred retailers.
• 39:41
  SPEAKER_01: So we you know that that's ultimately the relationship that we've got.
• 39:45
  SPEAKER_01: Plus, sorry, I should say uh all of our deposits uh customers as well, but they're they're typically either they either know us or they're coming through aggregators.
• 39:54
  SPEAKER_01: So we have that sort of low level of marketing spend, low level of uh brand awareness.
• 39:58
  SPEAKER_01: I think you're right.
• 39:59
  SPEAKER_01: If we sort of go down that road of sort of saying, okay, we're now going to try and make more of this um fantastic retail platform that we've got, we'll have to ask our ourselves the question uh, does that stand?
• 40:11
  SPEAKER_01: Are we going to need to invest uh further behind the brand?
• 40:14
  SPEAKER_01: Um, the good news is that those customers uh know V12.
• 40:18
  SPEAKER_01: That's who, whilst they've come in through a retailer, their relationship from a credit point of view is with V12.
• 40:24
  SPEAKER_01: Um and we'd very much be focused on marketing to that group rather than more broadly.
• 40:28
  SPEAKER_01: Um so I don't think you need a big expansion in in uh in marketing spend.
• 40:33
  SPEAKER_01: Um, but it's definitely something you'd wanna you'd want to consider, particularly as you wanted to build uh sort of long-term value in that um in that business line.
• 40:41
  SPEAKER_00: Yeah, it's probably my question, probably wasn't very well worded.
• 40:44
  SPEAKER_00: It was more about mindset about being consumer focused rather than business focused, because as you said, like you're you're very much a B2B business today, even though you do have in-customer relationships.
• 40:54
  SPEAKER_00: Turning to your your third strategic priority, which is capital discipline and growth.
• 40:58
  SPEAKER_00: I mean, I guess the context of this priority is that probably when you started the business was just about capital accretive or very much in that transition from becoming capital accretive.
• 41:10
  SPEAKER_00: So so in some sense, you haven't you didn't have all of the tools at your disposal in terms of capital allocation, um, certainly when you started compared to today.
• 41:18
  SPEAKER_00: So how how do you think about allocating capital?
• 41:22
  SPEAKER_00: How how do you decide which parts of the bank really deserve incremental capital and sort of order of priority?
• 41:28
  SPEAKER_01: Well, I I guess we start with a sort of uh a laser-focused assessment um of the deals that we've sort of currently got on the book and the ones that we're sort of assessing as they come through the pipeline.
• 41:40
  SPEAKER_01: Um I guess like every bank, we've got a budgeting process where we're sort of saying, okay, how are we allocating capital between our the our different areas of business and we and we sort of make that allocation um through the budget process.
• 41:53
  SPEAKER_01: Um I'm then sort of uh laser focused.
• 41:56
  SPEAKER_01: We have a sort of weekly sales and service meeting where I'm trying to understand what's in the pipeline and what are the relative returns of those deals, um, and we're prioritizing activity behind them on the uh on the back of it.
• 42:08
  SPEAKER_01: Um and then we have a sort of we have an internal sort of sign-off process for anything that uh that doesn't meet those uh meet those thresholds.
• 42:15
  SPEAKER_01: So we're sort of, I guess I'm giving you this picture because we're we're quite sort of disciplined uh and focused on it.
• 42:20
  SPEAKER_01: And that's because if we're gonna get power out of the out of the product expansion, we've got to be willing to sort of switch horses um and make sure that we're focusing on the deals where we are gonna get uh we are gonna get real return.
• 42:33
  SPEAKER_01: Um and that's the way that we're trying to we're trying to drive the uh drive the business.
• 42:37
  SPEAKER_01: I I sort of uh as I sort of look back on some of the best businesses I've been on in from that point of view.
• 42:44
  SPEAKER_01: I actually I quite like I quite like Stuart Mack in the CEO at uh at MS.
• 42:48
  SPEAKER_01: He's sort of he's put a phrase around it, it's sort of positive dissatisfaction.
• 42:52
  SPEAKER_01: And I'm like, uh I when I think back, most some of the best businesses that I've led have had positive dissatisfaction, and that's what I try and get into the into the team.
• 43:02
  SPEAKER_01: It's not that you're a misery, but it's that you're sort of constantly looking through a positive lens at okay, is this thing gonna work for us?
• 43:08
  SPEAKER_01: And I think in capital discipline, that's particularly important.
• 43:12
  SPEAKER_01: How do we do better?
• 43:13
  SPEAKER_01: Yeah.
• 43:13
  SPEAKER_00: And and in thinking about hurdle rates, how how do we how should investors or or our audience think about sort of hurdle rates for you, your decision making for deploying another sort of incremental pound of of capital?
• 43:25
  SPEAKER_01: Uh I think they should ultimately know that I'm gonna think long and hard before deploying any capital against things that aren't gonna get north of a 16% uh return.
• 43:34
  SPEAKER_01: Um that's ultimately what we've said to the market that we'll do.
• 43:37
  SPEAKER_01: And of course, you know, in sort of in everyday business life, not everything is perfect and not everything is exactly got the return that you want it to have.
• 43:46
  SPEAKER_01: Um but in general, uh as I say, uh that's our focus.
• 43:49
  SPEAKER_01: So we we don't we don't have a sort of uh you know an exact hurdle that we publish uh externally.
• 43:55
  SPEAKER_01: Obviously, we've got some hurdles internally, um, but uh our North Star, as I say, is that's 16% uh plus and it is plus uh ROE that we want to make sure we're getting for the full year of 2028.
• 44:07
  SPEAKER_00: I mean as long as you get enough overs and unders, you you'll get to the right place.
• 44:11
  SPEAKER_01: Exactly.
• 44:12
  SPEAKER_01: But uh yeah, my focus is making sure there aren't too many unders.
• 44:15
  SPEAKER_00: Yeah, no, for sure.
• 44:16
  SPEAKER_00: And um just picking up on what you said something earlier, where you started to disclose your uh Rory return on required equity rather than as well as return on on equity, um I guess the context for the audience is that you're carrying um the the way your capital stack is structured, that you're carrying some debt that you're not able to deploy at the moment in terms of your tier one bonds, etc.
• 44:37
  SPEAKER_00: But thinking about the other part of the funding model, which is um the deposit side, which we we touched on a minute ago, I think I think the view in the market has been that Secure Trust is a is a sort of price taker, not a price setter, and that's partly about brand awareness, but you rely on aggregators, the the tables being top of the tables to come through to raise deposits.
• 44:59
  SPEAKER_00: Is there an scenario in your mind where that starts to shift, where you've got a point of difference, scale, something else that's attractive that means you can you can be a bit more um price sensitive or less price sensitive as a price taker?
• 45:14
  SPEAKER_01: Yeah, so we're we're very much working on sort of shifting that today, and and I guess you know that sort of perception of secure trust, I'd say, I'd say is is is off from uh from where today's reality is.
• 45:26
  SPEAKER_01: Uh the reality is that we've we've already got a strong base of uh of deposit customers.
• 45:31
  SPEAKER_01: Um those customers come back to us um rather than coming through aggregator tables, so we've got an opportunity to to keep those customers, and we've uh particularly in the last 12 months, we've done quite a lot to make sure that the journey for those customers um through our app is much stronger, and therefore they're more likely to return as a as a good usable uh deposit platform.
• 45:52
  SPEAKER_01: Um we've also broadened the set of products that we uh that we offer, which obviously helps to to manage margin through uh through time because not all of those products are as competitive as uh as others.
• 46:04
  SPEAKER_01: Um and then finally we started to broaden our distribution.
• 46:07
  SPEAKER_01: So we've actually just gone on Hargrooves Landsdown, which I think is a fantastic platform for attracting cash.
• 46:12
  SPEAKER_01: Um, and that's uh that's giving us further opportunities.
• 46:16
  SPEAKER_01: So uh I guess uh you know all of that sort of started to shift.
• 46:20
  SPEAKER_01: And as I was saying earlier, one of the good things about the scale that we're at is we don't have to raise money uh all the time.
• 46:27
  SPEAKER_01: So we can take a bit more of a smart decision.
• 46:29
  SPEAKER_01: And and and one of the process changes we made, which has actually turned out to be more powerful than even we thought it was going to be, um, was the ability we were previously having to wait 48 hours in order to reprice our products.
• 46:42
  SPEAKER_01: That's now 90 minutes.
• 46:44
  SPEAKER_01: Yeah that means that if our if our savings director sees a moment uh where he's like, okay, there's a there's a good chance of attracting good margin deposits here, he can get right in the market, uh, raise quite a lot of money in a short space of time and come back out again.
• 46:59
  SPEAKER_01: And that and those things um I think uh combined mean that actually in the first half of the year, and we're we're sort of seeing it in the second half as well, um, we've been able to manage margin pretty effectively.
• 47:12
  SPEAKER_00: I think some of our listeners will be shocked that it used to take two days to do repricing for it for tech for a tech business.
• 47:18
  SPEAKER_01: Not as shocked as I was.
• 47:21
  SPEAKER_00: Yes, well significant progress.
• 47:23
  SPEAKER_00: Um, and just wrapping it all up in terms of capital deployment, you you you made a comment earlier, Ian, that any excess capital will be returned to shareholders.
• 47:32
  SPEAKER_00: It it in some ways Secure Trust has been a bit of a victim of its own success.
• 47:36
  SPEAKER_00: That um I think around the time you started you were trading at sort of 0.4 times book, where buying back your shares must have been one of the easiest decisions you had as a CEO.
• 47:45
  SPEAKER_00: But now you've obviously the share price has come a long way, you're trading closer to book.
• 47:50
  SPEAKER_00: That must be a slightly harder decision for you.
• 47:52
  SPEAKER_00: So, how how do you think about balancing the buyback?
• 47:55
  SPEAKER_00: You're still committed to a progressive dividend and then incremental investment into the business.
• 47:59
  SPEAKER_00: Sort of help us help us sort of frame those three decisions.
• 48:03
  SPEAKER_01: Yeah, I mean, look, we're we're fortunate that these are now problems that we have to wrestle with because we've both we've both got out of vehicle finance, which releases a lot of capital, and we're generating capital uh ourselves.
• 48:13
  SPEAKER_01: Uh essentially, we've got a capital allocation framework that says, okay, well, you know, this is the excess capital that we've got.
• 48:19
  SPEAKER_01: Uh, where are we going to get the best return in terms of deploying it?
• 48:23
  SPEAKER_01: Um, the starting point, as it should be for any bank, is what you know, where's our organic growth and is that generating a stronger return than we get from other capital allocation processes?
• 48:33
  SPEAKER_01: And the good news, as we talked about earlier, is that is absolutely the case at Secure Trust.
• 48:38
  SPEAKER_01: But um, for right now, we've got we've got additional excess capital over and above that.
• 48:43
  SPEAKER_01: Um, we've used that initially in a share buyback program, 10 million pounds, which we're in the process of completing.
• 48:49
  SPEAKER_01: Um, and I think yeah, well, exactly to the point you made when your shares are are trading at below, but that's a relatively straightforward trade-off.
• 48:57
  SPEAKER_01: I think then we'll have to sort of post that, uh, continue to ask ourselves that question.
• 49:02
  SPEAKER_01: Is that still the best use of capital?
• 49:04
  SPEAKER_01: Um, uh, are there other further organic opportunities, or should we be increasing our dividend?
• 49:10
  SPEAKER_01: Um, because obviously we've got lots of investors who would like us to do that rather than do uh share buybacks.
• 49:16
  SPEAKER_01: And I guess my answer rather than being binary is we've sort of published what that capital allocation process is.
• 49:21
  SPEAKER_01: We'll continue to listen to uh to shareholders and then we'll see where we go.
• 49:26
  SPEAKER_01: I guess my bias is we're still trading at below book.
• 49:30
  SPEAKER_01: Um, and therefore, I think whilst ever you're below book, you've got to ask yourself are there, you know, are there better uses of this than buying my own shares back?
• 49:38
  SPEAKER_01: Because that seems like a pretty reasonable uh trade.
• 49:41
  SPEAKER_00: There's always the challenge you ask five investors whether they want buy book or dividend, and you get seven answers back.
• 49:46
  SPEAKER_00: So uh hard to uh keep everyone happy.
• 49:49
  SPEAKER_02: Well, can I just sort of come back to that point on on culture?
• 49:52
  SPEAKER_02: Because I think it's really important because you know banks are unusual and that they look very successful up until the point that credit deteriorates and you know the decline could be quite quite rapid.
• 50:03
  SPEAKER_02: Um, but you all you've got a quite ambitious growth target versus most banks 10%.
• 50:08
  SPEAKER_02: So that culture is really important.
• 50:10
  SPEAKER_02: And how do you create a culture where people are ambitious, you know, they want to grow, but actually they're doing uh they're they're writing profitable growth, uh, which is risk-aware?
• 50:21
  SPEAKER_01: Well, the the good news from my point of view is having come into the business, uh, the really great thing about the STB culture um is that people uh start out wanting to do the right thing by either the bank or by our clients, and that is sort of ingrained in the DNA of the business, and that's nothing to do with me, it was it it's there, and that's a great starting point in getting that balance.
• 50:43
  SPEAKER_01: Now, what I've tried to inject on top of that is is more challenge, uh, some more pace, um, so that we can do uh exactly as you described, both a growth target whilst keeping uh sort of risk uh in check.
• 50:56
  SPEAKER_01: And actually, I think the two feed each other because the problem is if you just have a high level of risk awareness but you don't get things done, actually you're creating quite a lot of risk uh just inherently in that in that position.
• 51:09
  SPEAKER_01: And being unwilling to challenge each other, not that I'm saying no one was doing that, of course they were, but having having a culture where challenge is an accepted part of how you run the business, I think actually helps risk decisions and because ultimately then you've got the first line, the second line, the third line, all willing to sort of have a bit of a stoush uh and try and come to the right uh to the right answer.
• 51:31
  SPEAKER_01: So what I look for in a in a healthy culture uh is those uh are those balancing points inside the business.
• 51:39
  SPEAKER_02: And what when it comes to you know your management dashboard and all the information that you have um you know coming coming um on your computer every day, you know, what what are the kind of early warning indicators that you personally look at when thinking about credit risk and perhaps you know we need to to flex the uh the risk profile within the book?
• 51:59
  SPEAKER_01: Well, I guess as a sort of old consumer credit guy, I'm sort of uh I'm constantly staring at the early arrears uh performance of uh of business that we booked, frankly, in business finance and in in retail finance.
• 52:12
  SPEAKER_01: So that's probably the number that I'm looking at.
• 52:15
  SPEAKER_01: But then I you know I sort of think you know, if if you're if you're the CEO, of course you want to go through the uh through the data, which I do on a on a regular basis, but you've also got to look for some sort of other indicators that tell you that the wheels are starting to come off or the people are pushing uh too hard.
• 52:32
  SPEAKER_01: Um, and I always think, you know, if your sort of if your sort of assessment of the book that you've currently got from a risk perspective is taking second place to trying to uh underwrite and assess uh new front book deals, that's starting to tell you that things are getting a little bit uh out of line.
• 52:51
  SPEAKER_01: And then if you've got a sort of reluctance or a hesitancy or not the capacity to make changes on the back of what's going on in the in the broader environment, then again, that's usually an indication to me that people aren't sort of sat there sweating on what's happening in the in the sort of broader credit environment.
• 53:08
  SPEAKER_01: So I I try to sort of as well as looking at the data to think about some of those things and whether or not I've got the right dynamic um between my my sort of credit and uh and the sales teams as a result.
• 53:21
  SPEAKER_00: We we try not to make this too uh short termist, but in terms of in terms of sort of that that dashboard that you're looking at, what what's your sort of assessment of the macro at the moment for sort of UK UK economy?
• 53:33
  SPEAKER_01: Well, I guess I'm sort of I'm one of a rare breed of relative optimists in the uh in the banking community.
• 53:40
  SPEAKER_01: Um I I sort of ultimately from a UK point of view, I think that actually this isn't 2022.
• 53:47
  SPEAKER_01: Uh I think lots of the drivers of uh of inflation are actually going the in the opposite direction to energy uh prices.
• 53:55
  SPEAKER_01: Uh I think employment's done it employment's in pretty good shape.
• 53:59
  SPEAKER_01: Um and as you can see from some of the growth stats over the course of the last couple of years, I think things have have started to improve.
• 54:06
  SPEAKER_01: So I think all of that sort of X what's uh going on in the in the Middle East uh I think points to a reasonably positive direction.
• 54:14
  SPEAKER_01: Now, the massive but to all that is how how and when is uh is that situation going to unwiden itself and how quickly will some of the uh some of the energy costs uh really feed through into um into consumer land.
• 54:30
  SPEAKER_01: Um but I'm I I you know I I think equally um you know at times like this uh I'm gonna I'm gonna bag another profession now.
• 54:38
  SPEAKER_01: Economists uh tend to sort of try and look clever by making big calls about big impacts.
• 54:45
  SPEAKER_01: And I guess in as I sort of look back over the last 25 years, there's only there's a very few examples of where things go off a cliff edge.
• 54:54
  SPEAKER_01: Um usually they move uh much more gradually and uh and I and that's my expectation.
• 55:00
  SPEAKER_00: Well you you we we're coming to the close.
• 55:01
  SPEAKER_00: You've you've bashed the big banks and you've bashed economists.
• 55:04
  SPEAKER_00: Hopefully you'll give us podcasters uh a pass.
• 55:08
  SPEAKER_00: But uh just if you were gonna uh sum up for our listeners, Ian, what how how would you frame the business case for Secure Trust Bank?
• 55:16
  SPEAKER_01: Well, look, I I think for us, and I've said this to investors, there's probably five key elements to the to the business case.
• 55:22
  SPEAKER_01: Firstly, we are now operating into uh big scale markets with loads of product opportunities for us as we uh as we march uh as we march forward.
• 55:31
  SPEAKER_01: Uh secondly, we're getting uh real operating leverage, we're investing behind taking cost out of the business, and we've said we'll take 25 million out by the time we get to 2028, and that uh gives us a real opportunity to hit that 35% cost to income ratio that I that I talked about.
• 55:48
  SPEAKER_01: We're already operating at a lower cost of risk than we have done uh historically, and I see that uh persisting through the cycle.
• 55:55
  SPEAKER_01: Uh we're well capitalized, uh, we've got a really strong uh capital base and a share buyback program uh in place.
• 56:02
  SPEAKER_01: Uh and we're on track for higher uh returns.
• 56:05
  SPEAKER_01: And I guess what I mean by on track is ultimately uh the business case here isn't built on us uh making some big quantum shift.
• 56:14
  SPEAKER_01: Uh actually, if we keep margins where where they are, uh roughly stay in the same sort of sectors that we're currently in, deliver against that cost program that I talked about, and grow the business at 10%, which by the way is what we've pretty much grown the business at for each year for the last five years, um then we will get to that north of 16% uh target.
• 56:35
  SPEAKER_01: So uh as I look at it, uh you know, those five key things I think are are a really strong uh business case uh and why uh, and and by the way, I I bought a lot of the stock myself, so I'm not telling people something that uh that I'm not I'm not doing.
• 56:50
  SPEAKER_01: Uh that's why I think this is such a strong investment case for people.
• 56:54
  SPEAKER_00: Great.
• 56:54
  SPEAKER_00: Well, that thank you.
• 56:55
  SPEAKER_00: That was very clear and thorough.
• 56:56
  SPEAKER_00: I I just want to pick you up on the north of 16 because uh again, as an observer, I was always slightly surprised that the 400 basis point pro forma benefit you got from exiting vehicle finance didn't already go on the 14 to 16 percent RRE target that the previous management team had, which on my simple maths kind of should mean that you're more more in the kind of 18 to 20 category.
• 57:17
  SPEAKER_00: So what what went against that?
• 57:19
  SPEAKER_00: And then I guess sort of how north is north.
• 57:25
  SPEAKER_01: Well, what I would say is that there's nothing wrong with your maths, um uh but look, uh equally in setting some medium-term targets for the uh for for uh investors, uh what I didn't want to do was to just put the number that we've got in our budget um instead.
• 57:43
  SPEAKER_01: I think it's right that we sort of set something that we're gonna be we're gonna be north of.
• 57:47
  SPEAKER_01: So uh other people have pointed out that uh that calculation, and I wouldn't I wouldn't disabuse them of it, but um, but we're we're focused on being north of 16%.
• 57:56
  SPEAKER_00: As an IR practitioner, I 100% support underpromise over deliver.
• 58:00
  SPEAKER_00: Um and then maybe my final question for you, and this has been a great conversation, is just if we were gonna uh invite you back here in three years' time, what would uh what would Secure Trust Bank need to look like for you to say that your strategy is is delivered and has been successful?
• 58:14
  SPEAKER_01: Uh well I I'd sort of I'd love to come back uh firstly.
• 58:17
  SPEAKER_01: Uh but uh but look from from our point of view, we should by then have achieved those medium-term targets that I keep banging on about.
• 58:25
  SPEAKER_01: Uh we should have a book that's north of uh five billion.
• 58:28
  SPEAKER_01: We should be making over a hundred million in profit.
• 58:31
  SPEAKER_01: Um, but I think as importantly, uh we'll have a really uh you know a standout uh point of sale but also broader retail business.
• 58:40
  SPEAKER_01: Um we'll have a business finance uh franchise that we can be really proud of and a technology platform across the business that I can sort of genuinely shout about from the uh from the rooftops uh and that's pushing hopefully some of the fintechs to sort of think uh twice about the story that they're telling to um to investors.
• 58:58
  SPEAKER_01: So uh I think I think those things would be a real acid test uh of where we are.
• 59:03
  SPEAKER_01: Oh, and and by the way, we'll also be in the FTSE 250.
• 59:07
  SPEAKER_00: Sounds great.
• 59:08
  SPEAKER_00: We'll book you in for three years' time.
• 59:10
  SPEAKER_00: Ian, thanks very much for coming on the business case.
• 59:12
  SPEAKER_01: Appreciate the time.
• 59:13
  SPEAKER_01: Thank you.
• 59:13
  SPEAKER_01: Thank you.
• 59:15
  SPEAKER_02: So, Phil, um, Secure Trust Bank.
• 59:17
  SPEAKER_02: We've had quite a few um financial companies on the podcast.
• 59:20
  SPEAKER_02: We'll see Nigel Tarrington with Paragon Bank, uh, Simon Rogerson, Octopus Investments.
• 59:26
  SPEAKER_02: Um, what was your take on Secure Trust Bank?
• 59:29
  SPEAKER_00: Yeah, look, it's a business I know quite well, and um I've followed them for for a while.
• 59:34
  SPEAKER_00: And I thought that I actually thought the previous management team had had done a really good job of converting what was a disparate collection of business units into a group, and Ian's clearly taken it forward to another level.
• 59:47
  SPEAKER_00: Um I think it's actually became so apparent during this conversation how important that exit of the vehicle finance business was.
• 59:55
  SPEAKER_00: All of the metrics when Ian summed up at the end around sort of what's the investment case, a lot of it, a lot of it does come from that exit of the vehicle finance business.
• 1:00:04
  SPEAKER_00: You know, it was very capital consumptive, it was a loss-making business, its cost of risk was much higher than the rest of the group.
• 1:00:11
  SPEAKER_00: It carried a lot of cost and it wasn't really kind of washing its face.
• 1:00:16
  SPEAKER_00: And you know, a lot of what he talked about in terms of organic growth, deploying capital, all becomes a lot easier without that vehicle finance business.
• 1:00:24
  SPEAKER_00: Now, clearly it was the it was an option value on growth and and it and it and it didn't come to anything.
• 1:00:29
  SPEAKER_00: So I really enjoyed the conversation.
• 1:00:31
  SPEAKER_00: I thought Ian was very engaging, charismatic, and he had a real clarity of message, which again I think is really important for smaller companies because this is a specialist subject, and you have to talk to generalists.
• 1:00:44
  SPEAKER_00: And I think I think Ian did a really nice job of that.
• 1:00:46
  SPEAKER_00: What were some of your takes, Mark?
• 1:00:48
  SPEAKER_02: Yeah, well, I think it's um you know the star of the show here uh is is V12, yeah.
• 1:00:54
  SPEAKER_02: You know, that is a real platform business which has um great technology, you know, a real cohort of data so they can underwrite effectively.
• 1:01:03
  SPEAKER_02: And I think they do two or three technology integrations with new clients every week.
• 1:01:08
  SPEAKER_02: I mean, very few banks could actually pull that off, and it's something that has to work immediately.
• 1:01:13
  SPEAKER_02: So that's that's that's very impressive.
• 1:01:15
  SPEAKER_02: And I think some investors um you know the critique would be well, why don't you just focus on that, grow that as much as possible, yeah, get the returns you know in into the 20s and um you know shrink the uh the the share count?
• 1:01:29
  SPEAKER_02: Uh I I think Ian set out a slightly more nuanced strategy.
• 1:01:32
  SPEAKER_02: Well, actually, we've got two sets of um you know growth areas, and that provides balance.
• 1:01:38
  SPEAKER_02: And I I suppose that's going to be you know, that's what the jury will decide.
• 1:01:42
  SPEAKER_02: I mean when he comes back in three years' time, you know, has he managed to grow both businesses and you know the 16% plus uh ROE is the plus really you know a plus?
• 1:01:53
  SPEAKER_02: And but I mean if they can grow the book safely at 10% per annum and then you've got that 16 plus growth.
• 1:01:59
  SPEAKER_02: I mean, this is a 20% TSR company, which I mean you're not gonna get that from um the clearing banks in the UK.
• 1:02:06
  SPEAKER_00: Yeah, look, I think they're in a good spot as uh you know I it it did bring back a lot of sort of reminders of the really interesting conversation we had with with Nigel and Paragon and and sticking to your knitting, just doing a really, really good job and execute well can go you go a long way, and you can be a really successful business and shareholders can really benefit from that.
• 1:02:28
  SPEAKER_00: I think, as you say, the the the jury is slightly out for secure trust on whether some of these product adjacencies, well clearly very logical, how Ian described them, made a lot of sense.
• 1:02:39
  SPEAKER_00: You know, they're they're scale businesses, they fit within the existing platform, but you know, there there are some reasons.
• 1:02:45
  SPEAKER_00: I think he was he he was maybe a little bit sim oversimplistic in in why the business hadn't gone into some of these categories before, whether it's the underwriting capabilities or whether it's the the returns profile aren't quite as attractive.
• 1:02:57
  SPEAKER_00: But you know, that that's going to be the proof, the proof's gonna be in the pudding.
• 1:03:00
  SPEAKER_00: You know, he he was very, very confident in his in 16% target, and I think as long as the cycle kind of is relatively benign for them, then you know they should be able to keep the the cost of debt down and uh the or sorry, the bad debt rather down.
• 1:03:17
  SPEAKER_00: And then he's on a very linear progression, actually, because as you said, the book the book's been growing at 10% per annum in the existing business for a quite a while, and uh you know it's somewhat more of the same.
• 1:03:29
  SPEAKER_00: That's not to say it's easy, but it feels like it feels like those targets are definitely achievable.
• 1:03:34
  unknown: Good.
• 1:03:35
  SPEAKER_02: Well, I hope you enjoyed that conversation with Ian.
• 1:03:37
  SPEAKER_02: Uh, do leave us a review or rating, and uh stay tuned for more interesting chief executive podcasts going forward.