Challenger Banks - More Challenged now

Challenger Banks: I wrote recently on these, coming to the conclusion that they were worth keeping an eye on, albeit income investors may want to wait until dividend flows ramp up further down the road. I especially focussed on Aldermore (ALD.L) and Shawbrook (SHAW.L) as being two ‘clean’ start-ups without baggage from any existing physical estate or venerable IT architecture. Part of my interest was that the Government has been keen to promote these challenger banks as a source of competition to the discredited established players. However, the Budget seems to have chucked a load of sand into their engines. Changes (i.e. reductions) to mortgage tax relief for Buy-To-Let landlords may affect demand for such mortgages, which are important products for many of the challenger banks. Secondly, the Government is unwinding the bank levy tax on large banks global balance sheets but is keeping a domestic element and introducing an 8% tax surcharge on profits, which will directly impact the challengers. Yesterday we saw sharp falls in their share prices, although the precise effects on earnings are rather cloudy. For now, I would stick to my view that these could be very interesting investments, but that income hunters can afford to wait for better earnings visibility to emerge. (Neil Cumming^, 9^th July 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower