Small bank – big deal?

Nia Williams

June 1, 2009

I’m delighted to be able to tell you that, as this edition of Commercial Finance Introducer was rolling off the printed presses, I was completing an historic deal which will enable Base Commercial Mortgages to start lending once again.

No, I’m not talking about a resumption of lending in the next year, but in the next couple of months. And when I say historic I really do mean it, because the deal to which I refer was the first time that a British bank had been bought by a private equity firm.


In order to understand the significance of this deal, it is perhaps worth winding the clock back a year or so. You may recall that Base Commercial Mortgages was founded in 2007 as a specialist commercial finance lender. Backed by AnaCap Financial Partners, a private equity firm with more than €850 million under management, Base’s business model was beautifully simple: we marketed commercial mortgages for small and medium sized enterprises via commercial finance brokers, which we funded via the wholesale money markets.

When the credit crunch really started to bite in 2008 we faced similar problems to several other specialist lenders: we couldn’t access competitively priced funding and therefore had no option but to stop lending. At that point our backers, AnaCap, started exploring a range of options which would enable Base to start lending once again and the solution which emerged was to acquire a bank.

Acquiring a bank gives us access to retail deposits, a funding line which, to date, we have not been able to access. However, finding the right bank was the big challenge. It goes without saying that we were not interested in a distressed bank (there happened to be a glut of those on the market when we were looking!) and we had to be realistic about the size of bank that AnaCap could acquire – Standard Chartered and Barclays were out of our league!

Ruffler Bank

A solution presented itself in the form of Ruffler Bank, a small bank with a balance sheet of £74 million, which was established in 1969 by Roy Ruffler, who was looking to retire. An analysis of the bank proved that the fit with Base was perfect: it has a loyal base of investors and expertise in providing funding for small and medium sized businesses. AnaCap was willing to invest £80 million into Ruffler as part of the deal, giving it a tier one capital ratio of more than 40 per cent – the highest tier one ration of any bank in the UK! Ruffler Bank may have been small, but it was perfectly formed!

There was, quite rightly, one very important hurdle which we had to step through before the deal could go ahead: we had to satisfy the FSA that we were fit and proper individuals to take over the running of a UK bank. AnaCap has been able to pull together a team of banking experts to join the business, including Phillip Monks who has more than 26 years banking experience with Barclays, who transformed the European operations of Arab Bank plc into the largest private Middle Eastern bank in Europe. We passed the FSA’s propriety test and, on April 29th, they confirmed that they had no objection to AnaCap’s acquisition of Ruffler Bank.

The deal was formally completed on May 20th and, on the same day, Base was formally ‘acquired’ by Ruffler Bank, to create a single business which is ideally positioned to provide competitive asset and property finance facilities to small and medium sized businesses throughout the UK. Phillip Monks is taking-up the reins as chief executive of the enlarged bank and I am deputy chief executive and managing director of Commercial Mortgages. I’m pleased to say that we have also been joined by other industry heavyweights such as Paul Myers, who has considerable operational experience gained in UK banking, and is chief operating officer. Of course, many of the Base stalwarts are also part of the team including our commercial lending guru and head of lending for the Bank, Rob Lankey.


As I’m sure you can appreciate, our focus as I write this article is on integrating two businesses and developing a strategy for our relaunch into the market; we’re not exactly lost for things to do! One of the key decisions we have had to make has been how to re-enter the commercial lending market. Should it be direct to end users or via commercial finance brokers, the strategy we adopted in the past?

The conclusion we have come to is that our overriding priority is maintaining a tight control over application and credit quality and being able to control new business volumes and for that reason we have decided to continue marketing our services via professional commercial finance brokers.

However, we have also decided to restrict our initial re-launch to a limited panel of brokers. Why? Our overriding fear is that with so much pent-up demand for commercial mortgages, we could be swamped with applications, a situation which we want to avoid at all costs. By working with a limited panel of brokers, we can ensure they fully understand our criteria and case submission requirements. In due course, we will be increasing the size of our panel but for the time being we must take a cautious and prudent approach.

I do appreciate this means that many of the brokers who have supported Base in the past, for which we were very grateful, will not be able to submit business directly to us in the immediate future. I do hope they can appreciate the reasons why we have decided to re-launch via a limited panel. There is, of course, nothing to stop them contacting the brokers on our panel if they have applications which they feel may be well suited to us. Our plan is to start briefing our panel brokers during the next few weeks and start lending shortly thereafter, so we should be back in action by the early summer.

Does size matter?

The big question, of course, is how much difference is a small bank going to make in such a big market? After all, Ruffler Bank is hardly going to make the likes of HSBC or Barclays quake in their boots! True enough, our ambitions are modest by comparison, but the real significance of this deal is that it plays a part in an overall sea-change that is taking place to the way in which banking services are provided in the UK.

Just a couple of years ago being big was regarded as best by banks and their clients, because size delivered financial clout and marketing muscle. But not any more. Big banks are now viewed with suspicion by many personal and business customers. The credit crisis has not done large financial institutions any favours and suddenly smaller institutions, which have strong balance sheets and real expertise in the markets in which they operate, are very much in favour. Where small used to be a drawback, it is now a great strength.

You may have read recently about the proposed launch of the ‘Bank of Essex’. This initiative has been developed by Essex Council to help small businesses in the County and is a good example of a new very targeted initiative that would not have been taken seriously just 18 months ago. The media loved the idea and, more importantly, I suspect businesses in Essex will too! Being big is not the key to success any more; having real expertise and being genuinely focussed on the needs of your customers is now what it’s all about.

The merger of Ruffler Bank and Base Commercial Mortgages has not only given us the opportunity to re-enter the commercial mortgage market, but also redefine and strengthen our proposition. We don’t have pretensions to change the world, but we do think we can make a real difference in our chosen sectors of the market.

It’s great to be lending again!

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