Challenger bank TSB's annual profit inches up

British lender TSB Banking Group said its 2014 pretax profit rose 2.3%, as it drew customers from established rivals.

TSB, on 25 February, also said it will consider acquisitions to quicken its expansion.

The bank said in a statement that its pretax profit rose to £133.7m ($207.3m) in 2014, from £130.7m in the preceding year.

TSB said it was open to considering "appropriate inorganic growth opportunities as they arise."

The challenger bank said it had taken an 8.4% share of all new personal current accounts opened over the past year with almost 500,000 new TSB bank accounts set up in 2014.

Chief Executive Paul Pester commented: "2014 was a pivotal year for our business as we started to establish TSB as Britain's challenger bank. In terms of financial performance, I'm pleased that, on balance, we've exceeded the expectations we set out at the time of our IPO in June last year.

"In addition, I'm delighted that we've made such a strong start in delivering TSB's growth strategy. With 8.4% of all people switching or opening a bank account in 2014 choosing TSB; with the recent successful launch of our TSB mortgage broker service and with more people than ever before now recommending TSB to friends and family, it's great to have reached 'base camp' on our mission to 'bring more competition to UK banking.'"

Analyst take

Ken Odeluga, a senior market analyst at City Index, said in a note: "Our view is that the main focus for investors in this fledgling bank is not yet about its ability to increase profitability...Instead investors are likelier to judge it on its ability to increase the rate at which it grabs market share from its established UK rivals..."

"...these results look very much to be 'steady-as-she-goes'. There are no great upside or downside shocks, and in fact that will go down well with the kind of investor interested in this segment."

Odeluga added: "One additional point of interest which might have piqued investors this morning was the comment from the chief executive that the bank would be open to 'right assets at the right price and they make sense to our shares.'

"Given categorical reassurances given by the bank about capital discipline, unless it breaks such pledges, the likelihood of a deal that's not immediately accretive looks remote—that's a positive.

"Especially in view of TSB's target to of 10% return on equity by 2019. Whilst that timeframe provides some wiggle room, we do not expect the bank to play fast and loose with equity for the sake of anything less than solid (even stolid) assets."

UK regulators want new banks to challenge the nation's big four lenders - Lloyds, Royal Bank of Scotland, Barclays and HSBC, which provide 75% of the country's personal current accounts.

TSB became Britain's 7th biggest lender after it was hived off from Lloyds Banking Group in June 2014.