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Edited Transcript of OSB.L earnings conference call or presentation 19-Mar-20 9:30am GMT

Full Year 2019 OneSavings Bank PLC Earnings Call

CHATHAM Mar 20, 2020 (Thomson StreetEvents) -- Edited Transcript of OneSavings Bank PLC earnings conference call or presentation Thursday, March 19, 2020 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew John Golding

OneSavings Bank Plc - Group CEO & Director

* April Carolyn Talintyre

OneSavings Bank Plc - CFO & Director

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Conference Call Participants

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* Amandeep Singh Rakkar

Barclays Bank PLC, Research Division - European Banks Analyst

* Benjamin Toms

RBC Capital Markets, Research Division - Analyst

* Edward Hugo Anson Firth

Keefe, Bruyette & Woods Limited, Research Division - Analyst

* Ian David Gordon

Investec Bank plc, Research Division - Head of Banks Research

* John Cronin

Goodbody Stockbrokers, Research Division - Financial Analyst

* Nicholas Herman

Citigroup Inc, Research Division - Assistant VP and Analyst

* Portia Anjuli Patel

Canaccord Genuity Corp., Research Division - Analyst

* Robert Ian Sage

Peel Hunt LLP, Research Division - Analyst

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Presentation

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [1]

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Good morning, everybody, and thank you for taking the time to dial in to our call today during, what can only be described as a period of unprecedented events. I've heard some express a sentiment that historic results are less important at the moment, given the change in market conditions we are now all experiencing. I don't agree with this. The health and fitness of a patient usually determines both the severity of the symptoms and the speed at which they recover. And OSB is a fit and healthy patient.

The results will show you a well-capitalized, highly liquid bank with a strong secured balance sheet, industry-leading efficiency metrics and very low arrears. We are stronger together now that we've merged, and whilst every business in the U.K. will be impacted by these global events, we aim to do all that we can to be in a position -- to position the group for a rapid recovery and make sure that we can be fleet of foot versus our more constrained competitors when markets begin to normalize, which they will.

There are 4 key messages that we'd like you to take away from today: 2019 was another strong year, both OSB and CCFS maintained growth and delivered strong results even in the weight of a complex transaction occurring during the year. The group's net loan book grew by 23% on a pro forma underlying basis, obviously, excluding the impact of structured asset sales. And our pro forma underlying return on equity was exceptionally strong at 25%.

Our integration has progressed well. We brought our teams together. I've determined the senior management team and the Board have made their choices of the team that is going to lead and govern this group going forward. Employees are working well together across the business, and our enhanced skill set has already been demonstrably deployed over our enlarged balance sheet.

We're confident we have the right board and senior management team and strategy in place to deliver the very best for our customers and shareholders in what is potentially likely to be a volatile period.

We take risk management extremely seriously and are cognizant of the uncertainty in the U.K. and global economies. The board is well advanced in the deployment of our plan around the threat of COVID-19, and I'm going to talk about that a little bit more in a moment.

In terms of outlook, it would be imprudent of us to give guidance today. However, we enter 2020 as a strong business with a robust pipeline, strong application levels and a stable net interest margin.

But of course, it's too soon to say exactly how our growth going forward will be impacted by COVID-19. So again, it would be imprudent of us to give guidance at this time.

So let's talk about COVID-19. We developed, some time ago with our board, a comprehensive 4-stage plan running through measures of prevention into continuity from an operational resilience perspective through impact and obviously, eventual severe stress testing to make sure that we were well enough capitalized to withstand any shocks that this might put in our way.

We've worked with external economists to develop severe pandemic related stress test to ensure that we're as well positioned as we can be.

We've done the operational resilience piece in terms of homeworking. We have several hundred of our teams currently working from home. But for those where we need office coverage, we've also split teams through our various locations around the U.K. and in India, which includes the deployment of our disaster recovery sites up in Hyderabad and across India in (inaudible) as well as a core team remaining in our main office in Bangalore. We are cautious on capital deployment until the future is clearer. Clearly, we've taken a decision to reduce our risk appetite, and we won't be looking to originate the sort of historic loan volumes that we did last year, at the moment.

But we're still very much open for business, but clearly, with a more selective appetite for risk and volume.

We are a well-balanced, resilient and diversified funding machine. The combined group has GBP 16.2 billion of retail deposits as of the 31st of December 2019, and an impressive securitization track record for both '19 and into 2020 with both OSB and CCFS executing securitization transactions and de-recognition trades through sharing the expertise across the now enlarged group.

We've chosen also recently to bolster our liquidity significantly above planned levels at a pure contingency measure should our customers need to access more of their liquidity.

Operational readiness for when the markets normalize for us is key. We continue to run as many projects that we can as possible to ensure that our proposition, our servicing and all of our ability to do business is in a state of readiness for future growth.

This includes continuing with the relocation of our prestige finance second charter business up to Wolverhampton.

Let me just quickly take you through the highlights of the results for 2019, and I will focus on a pro forma underlying basis.

And then I will hand over to April shortly, who will take you through a little bit more detail on the numbers.

Gross new lending was up 10% to GBP 6.5 billion in the year, with net loan book growth up 16% to GBP 18.2 billion. This helps us generate a 9% increase in profit before tax to GBP 381 million, and we delivered a strong return on equity of 25%.

All of this results in basic earnings per share, up 9%, and full dividend per share up 10%. Our cost-to-income ratio remains brilliantly controlled in the banking sector at 29% for the year.

And we sit here coming into 2020 with a fully loaded CET1 ratio of 16%, up 2.7 points on the prior year.

I'll now hand over to April, who will give you a little bit more detail on the numbers.

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [2]

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Thank you, Andy, and good morning, everyone. Before I take you through the results for the year, I wanted to explain the key differences between our results on a statutory and on a pro forma underlying basis.

Statutory results only include results for the CCFS business after 4th of October 2019 when the combination closed. They are also impacted by merger-related exceptional items, which include transaction costs, integration costs and other acquisition-related items.

For example, a significant net fair value uplift on CCFS' net assets at combination and the start subsequently of the amortization of that uplift.

The pro forma underlying results include CCFS results from the 1st of January 2018, and exclude all of these exceptional integration and acquisition-related items. I believe that they provide a more consistent basis for comparing the combined group's underlying financial and business performance between years.

So let's start with the drivers of our strong pro forma underlying ROE of 25%. Very pleased that we delivered a 9% increase in pro forma underlying profit before tax, due to strong growth and attractive margins with continued focus on cost efficiency and robust risk management.

On a pro forma underlying basis, net interest income rose by 11% to GBP 518 million, due primarily to the strong growth in the loan book, net of structured assets income.

Pro forma underlying net interest margin reduced to 266 basis points from 286 basis points. This reduction primarily reflects the impact of the changing asset mix of the OSB loan book despite broadly stable active pricing. The mix of the OSB loan book continued to change as the high-yielding back book refinanced on to front book pricing. However, this mix effect had largely run its course in the first half of 2019, with the full year NIM for the OSB business broadly flat to the first half, as previously guided in our Q3 trading update.

The bottom left-hand chart shows our pro forma underlying efficiency metrics. The management expense ratio, which is the ratio of OpEx to total average assets as well as our cost-to-income ratio. The management expense ratio improved in the year, falling to 84 basis points and our cost-to-income ratio remains strong at 29% as we continue to focus on delivering further efficiencies in the cost of running the group on a business as usual basis, through cost discipline and, of course, benefits of scale, whilst continuing to invest in the business where required.

The bottom right-hand chart shows our pro forma underlying loan loss ratio of 10 basis points for the year. The loan loss ratio remains strong as both businesses delivered strong credit performance driven by robust underwriting and prudent lending policies.

The year-on-year increase in the ratio was due primarily to the impact of aligning IFRS 9 modeling approaches post combination, and more focused collections activity across the OSB buy-to-let portfolio, which resulted in a number of high-value bio select cases, having LPA receivers appointed during the first half of 2019, and under the IFRS 9 rules, attracting a higher provision requirement. I'm pleased to say, though, that the number of LPA appointments stabilized in the second half of the year.

Turning to the next slide. This slide shows a year-on-year comparison of the income statement. We've shown both a statutory and a pro forma underlying basis.

So please apologize the busyness of this slide. And I want to draw your attention to a few lines.

Firstly, looking at the pro forma underlying results, you can see gains on structured asset sales totaling GBP 58.6 million in 2009, up from GBP 36.4 million in the prior year, demonstrating the CCFS business' capability to accelerate organic capital generation through the sale of residual certificates.

And Andy already talked about how we have already leveraged this capability across the combined balance sheet this year and a bit more about that later.

The statutory numbers include exceptional transaction costs incurred by the OSB business for the combination as well as post combination integration costs.

You can see on this slide that they also include a gain on combination of GBP 10.8 million. This is negative goodwill. This is due to the value of the purchase consideration falling in line with the OSB share price between the announcement of the deal and completion as well as the fair value of CCFS' net assets increasing over the same time period where we saw some quite significant movements in the LIBOR curve.

We're very pleased to report that basic earnings per share rose by 9% year-on-year on a pro forma underlying basis, broadly commensurate with the increase in profit after tax. On a statutory basis, basic EPS fell by 5% to GBP 0.526. The profit after tax rose by 14%. However, this was more than offset by the impact of all of the additional shares issued by OSB for the all share combination. Turning to the next slide.

We closed the year with a strong secured balance sheet, primarily funded with retail savings with diversification provided by securitizations and Bank of England funding under the TFS and the index long-term repo schemes.

Both OSB and CCFS ended the year with strong liquidity coverage ratios, significantly in excess of the regulatory minimum requirement at 199% and 145%, respectively.

Average loan to values in the loan book continued to be sensible at around 70% for both stock and new origination in both banks.

We continue to take a prudent approach to customer affordability, as demonstrated by our very strong interest coverage ratios for by-select lending, which Andy will cover in more detail later.

So let's turn to capital. You can see the group's capital position was very strong at the year-end, with a fully loaded CET1 ratio of 16% and a total capital ratio of 17.3%. The leverage ratio increased to 6.5%. The CET1 ratio benefited from the impact of the fair value uplift on CCFS' net assets at combination, less subsequent amortization and obviously, other transaction-related costs.

The after-tax fair value uplift is a short to medium-term boost to capital that is beneficial as we head into uncertain times.

The strong capital ratio also reflects the group's capital generation capability to support strong loan book growth through both profitability and our capability to pull forward capital through structured asset sales.

We enhanced our capital position further in January with additional structured asset sales.

Both OSB and CCFs are working towards IRB applications, and we remain pleased with the progress made and are seeing benefits from using the enhanced risk models developed as part of the process throughout the business already. We remain of the view that achieving IRB will be beneficial to our capital requirements, especially under the new calibrations and final IRB outflows as outlined in Basel III.

I'm just going to finish off with a review of our segments. Post combination, we now report on 2 segments: OSB and CCFS. Taking each of those in turn, we continue to segment OSB further between Buy-to-Let/SME and Residential. So I'll start with OSB's Buy-to-Let/SME subsegment, which experienced strong loan book growth in the year of 22% to GBP 9 billion, driven by GBP 2.8 billion of new organic origination, up 3% on the prior year.

The Buy-to-Let gross loan book grew 19%, and we had a great year in our Interbay business, where we saw high-quality opportunities to sensibly grow our semi-commercial, commercial real estate loan book, which increased by 62% to GBP 0.9 billion but at sensible loan to values.

Year-on-year growth in the overall loan book in this subsegment drove an increase in net interest income, which was up 15% to GBP 254 million.

The growth in net interest income drove the 9% increase in contribution to profit to GBP 232 million year-on-year, partially offset by higher impairment charges.

The loan loss ratio increased to 17 basis points due to the increase in LPA appointments in the first half that I mentioned earlier and also the impact of aligning IFRS 9 modeling approaches post combination.

Average LTVs remain sensible for both stock and new origination at around 70%.

Our next slide, turning to the OSB Residential subsegment, the gross Residential loan book increased by 14% in the year to GBP 1.8 billion, with organic originations nearly doubling to GBP 541 million after the new first charge product range launched in 2018 proved popular with our borrowers. As a result, the first charge gross loan book grew 20% to GBP 1.5 billion.

However, net interest income from the Residential subsegment fell 6% to GBP 63 million, primarily due to the changing mix of the loan book, including the impact of the new product range.

But as well as that, we had EIR gains on acquired portfolios in the prior year. Contribution to profit was broadly flat due to loan loss provision releases due to falling arrears levels across the first and second charge lending.

Average LTVs remained low at 58%, with new origination of 69%.

So if we can turn to the next slide, I'm going to talk through the CCFS segments. Our all numbers here are presented on a pro forma underlying basis so that you can see both years side by side.

And I'll actually focus my comments on the 2 largest subsegments, Buy-to-Let and Residential. The Buy-to-Let subsegment gross loan book grew by 5% to GBP 4.7 billion after structured asset sales.

Year-on-year growth would have been in a very impressive 30% and excluding the impact of these sales.

The growth was due primarily to a very strong new origination of GBP 1.9 billion, up 15% versus the prior year.

All CCFS's Buy-to-Let products proved popular with borrowers, especially limited company and specialist property types such as houses of multiple occupancy.

Net interest income was up 9%, including the impact of including early redemption charges, which were previously reported in fees and commission income.

Contribution to profit increased by 6% after a higher loan loss ratio, again, primarily due to the alignment of IFRS 9 modeling approaches post combination.

Average loan to values remained sensible at 71%, with new origination at 73%.

The next slide shows CCFS's Residential subsegment with a gross loan book, which increased by 27% to GBP 2.2 billion, driven by new lending of GBP 0.8 billion, down very slightly versus the prior year.

The business concentrated on lending in areas that have stronger risk-adjusted returns versus mainstream markets, where intense competition reduced rates, helped to buy, perform particularly well during the year.

Net interest income was up 17% year-on-year and contribution to profit was up 12%, again, after higher impairment losses, which increased primarily due to growth in the loan book and the alignment of modeling approaches post combination.

Average loan to values remained low at 67%, with new origination at 71%.

I'll now pass on to Andy, who will give an update on integration and our lending and funding franchises. Over to you, Andy.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [3]

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Thank you, April. Okay. As you know, we completed our merger with Charter Court Financial Services just about 6 months ago on the 4th of October 2019. And I genuinely believe that as a function of that, we are stronger together and that the industrial logic for that transaction remains sound. Our integration is on track. As we speak, our projects, our cost synergy delivery, are all on track as of today.

However, we must be cognizant of the impact of diverting our staff resources and attention into ensuring operational continuity through this difficult period of COVID-19.

We have been making sure that we share best practice and enhance skill sets across the group. And I think the recent deconsolidation trades in both CCFS and OSB are clear evidence of this.

The talent pool across both organizations is rich. And I'm really impressed how the teams have come together, and that skill set is being deployed on a very cohesive basis for both BIU, integration and in recent times, contingency planning scenarios linked to this current situation.

Our proposition remains exceptionally strong. Both banks have award-winning lending franchises and savings franchises and have continued to perform very strongly from a growth, retention and customer satisfaction perspective.

Let me share a little bit of detail with you on the following slides.

In terms of retention, you'll be aware that we've talked about the OSB Choices program for a number of years now. We target somewhere between 50% and 60% retention as mortgage products come to expiry.

And I'm delighted to say that last year, we continue to achieve the high 60s, in fact, 69%, choosing to renew onto a new product with us within 3 months.

This is a good accolade from our customers that when markets return to normality, we will be a lender of choice for them. The security remains strong. On Buy-to-Let, our origination demonstrates our prudent approach to the assessment of customers and their affordability, with very high interest coverage ratios at 187% in OSB and 202% in CCFS.

And we're well positioned in the markets we've continued to enjoy and target.

81% of OSB Buy-to-Let completions were to professional landlords during 2019. And applications for limited companies in CCFs increased by 21% during the year.

I usually tend to bung in a few shameless plugs. It doesn't really seem appropriate at the current time to do that.

However, an award-winning franchise is an important representation of the strength of how your markets receive you at the point that they need it.

Our savings franchises both continue to perform exceptionally strongly. As a group, we welcomed 67,000 new savers to the brands during the course of 2019, retention rates in both brands are exceptionally high, 91% in Kent Reliance and 88% in Charter Savings Bank. And customer satisfaction, quite frankly, for both organizations, not sit out of the park, with a Net Promoter Score of plus 66 in Kent Reliance and plus 72 in Charter Savings Bank.

And again, multiple awards won across both banks during the year, which is particularly pleasing.

Okay. Just returning in summary to some of those key messages. 2009 (sic) 2019 was a strong year. It has put us in a fit in a healthy position to deal with whatever the balance of 2020 throws at us.

Strong returns, strong balance sheet, strong metrics and strong delivery.

The combination is going well. We believe it's been successful to date we've delivered all the things we wanted to deliver to date, and we have the right team in place to lead and carefully govern this business through this volatile period.

Our risk management is at the forefront of our minds. We are operationally and financially planning well for whatever COVID-19 throws at us. And in terms of outlook, well, it wouldn't be prudent of us to give guidance, as we said earlier. But remember, we entered the year in a strong position with a robust pipeline, strong application levels and a stable net interest margin.

At that point, we will thank you for listening, and then we will open up to questions from the lines.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question on the phone line comes from Benjamin Toms from RBC.

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Benjamin Toms, RBC Capital Markets, Research Division - Analyst [2]

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3 quick ones for me, if I may, please. Firstly, could you just give us your sensitivity to a decrease in interest rate may be a 100 bps sensitivity? Secondly, could you tell us what your CET1 ratio could have been if you didn't have had -- if you hadn't had the fair value uplift?

And certainly, I know you don't want to give any guidance into the future. But without being too specific, is it fair to say that in an exCOVID-19 world, your business should be one that should print an RIC, that's well in excess of 12% because at the moment doesn't really `feel like the market is pricing that in.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [3]

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I mean, the third question, excellent question. I'll answer it straightforwardly, yes. But the first 2, I will -- I'll ask April to tackle those for you.

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [4]

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Okay. So let's start with the CET1 ratio here. We have, obviously, as I mentioned earlier, had a bonus, if you like, which is quite useful in these uncertain times of the fair value uplift on the Charter Court balance sheet on combination. It's a short to medium-term benefit because that uplift will amortize over the life of predominantly the loan book, which let's say is probably 3 to 4 years. But if I can talk you through some of the numbers, which you will find in a very useful reconciliation between statutory and underlying pro forma results in our pre loans.

If you look at the uplift on combination for the loan book and the mortgage pipeline, it was around GBP 317 million.

As we offset a small change on the retail savings book, that gives you a net pretax impact of about GBP 310 million. Assume our tax -- effective tax rate is about GBP 25 million. That means the increase in capital was GBP 230 million.

So we would just -- and then there's some amortization of that, that happened before the end of the year.

So I guess, the only impact, if you like, of the combination accounting, when you look at it all in the round on our capital ratio, is that after-tax impact of the uplift. And therefore, the level is broadly similar to what you would have seen, how do you just look at the individual solo banks?

But as I said, very helpful to have that bonus right now, I think. On interest rates, as a specialist lender and savings business, where we are still paying decent savings rates to our depositors, we clearly have the ability in an interest rate down scenario to actually reduce those rates, which isn't necessarily the case for some of the larger lenders who were already paying less than 50 basis points.

And we have control over the pricing of our balance sheet. Some of them are trackers, some of them are linked to our SVR.

But all else being equal, we are able to withstand significant drops in interest rates when it comes to net interest margin point of view by passing it all the way through.

What I can't tell you is what the savings market is going to do in the current climate.

With the recent 50 basis points drop, we were certainly in a position to pass it all the way through.

Obviously, interest rates don't just, in fact, impact margins. So we do a number of, as you know, very stringent stress tests on our business through all sorts of very, very harsh scenarios.

And that includes one, which is the Bank of England's rates down scenario, which is quite a severe prolonged stress, which includes base rate down to 0, it includes very high unemployment, it includes significant HBI degradation.

We've also started to receive pandemic scenarios from our third-party economists.

And right now, of course, these still develop as the situation develops.

Right now, these pandemic scenarios are within more severe stress tests that we run on our business and capitalize and make sure we have the right liquidity reserves to withstand, including the Bank of England rates down stress.

So I hope that gives you some context of what we are seeing today and what we are hearing from our economists. But the usual big caveats that the outlook is, of course, extremely uncertain and fast moving.

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Operator [5]

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The next question on the phone line comes from Nicholas Herman from Citi.

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Nicholas Herman, Citigroup Inc, Research Division - Assistant VP and Analyst [6]

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2 questions if I may. Just firstly on capital. Have you provided -- sorry if I missed this, have you provided us with an up update on your expected capital requirements for the enlarged group?

And as part of that as well, what's your current expectation on MREL debts issuance timing, please? Second question on growth.

I understand you don't want to provide too much of a guidance in the outlook right now, but is it fair to say that viewings are down? Are you able to give us a sense of that, please?

And also as part of that as well, from the funding side, how are you thinking about deposit gathering, given the uncertainty with volume growth?

And then the third question, please, on impairments. Sorry, if I've missed this, but have you disclosed the weightings of those 4 economic scenarios for IFRS 9 modeling purposes at the end of 2019?

And if we do see downgrades to Global and U.K. GDP growth, I mean, can you give us a sense of in terms of how sensitive impairments are to that sort of, if the U.K. were too into recession at the end of this year?

And then just finally, just one very quick question on integration. So just to confirm, from your perspective, the timing on integration and level of synergies is still fully on track and expected to be the same?

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [7]

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Okay. If I tackle growth and deposit gathering. And then I'll ask April to talk about your questions on capital, IFRS 9. And an integration timing delivery is one that either of us can answer, April can hand it back to me or happy that she'll take it. So in terms of growth, I mean, state agents clearly are reporting at the moment that viewings for proxy purchase have dried up, I think, is the phrase that I have read the other day.

That's hardly surprising given that people are endeavoring to isolate themselves away from others in the population, and that will run for a period until people start to return to their normal lives, get back to work and start doing the things that they want to do.

That clearly will have an impact on ongoing mortgage applications in terms of purchase requirement.

It's unlikely to impact the refinancing aspect of the market, which is a big chunk of what all lenders do and particularly a big chunk of what we do.

Mortgage deals will still come to the end of their term, and they will still be looking for refinance opportunity.

We would not want to, right now, have our first foot on the accelerator gunning for growth in the same way that we have previously. That wouldn't be the right thing to do in the current circumstances.

But again, once things normalize, as I said during the presentation, I want to ensure that we're fit and ready and our processing and capabilities are all there so that we can take advantage as the market starts to return.

You touched on deposit gathering in the context of lower growth. Clearly, if we don't need to fund so much growth, then we won't be looking to attract so many deposits.

Retention of our core deposits, they will still remain a key part of what we do.

We're very successful at that. The metrics for us, both brands and savings on retention are very strong.

Clearly, there was also government stimulus through the sort of TFS2 scheme and the SME multipliers. And we will look to take advantage of that, not least of all because it is very inexpensive funding.

So all of that comes into the funding mix as we go forward. April?

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Nicholas Herman, Citigroup Inc, Research Division - Assistant VP and Analyst [8]

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That's very helpful. Just to clarify, from a funding perspective, you just felt that your preference is still very much with deposit growth, though given the uncertainty through the year, given the volatility in markets will impact wholesale funding costs?

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [9]

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Sorry, you broke up, would you just repeat that there as?

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Nicholas Herman, Citigroup Inc, Research Division - Assistant VP and Analyst [10]

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Also just to clarify, is your preference, though still deposit-led funding just given -- particularly given the volatility in wholesale markets?

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [11]

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No. Yes, I see. I mean, yes, clearly, there is volatility in capital markets.

We have various options on the way that we can continue to make use of that, but you're probably not going to go out and bring the securitization trade tomorrow and sell all the notes into the open market.

But deposit funding has been core for us from the very beginning. When we had government schemes available to us in OSB, we made use of that as our wholesale funding channel. I think we will clearly look to take use of the TFS scheme and substitute wholesale with that. But in a normalized market, we are balanced. We have strict asset encumbrance policies. We want to make sure that we are predominantly retail funded, but funding lots of our liquidity portfolio with wholesale funding and deposit funding rather is franchise building, and that's what this business is all about.

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [12]

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Okay. I think I heard capital and what the requirement was, MREL and then impairment weightings. So if I start with capital, yes, we have disclosed in the prelims what our combined utility 1 requirement is, and that's 1.67%.

We also have a static integration add on whilst we go through the integration process. And then, I guess, some positive news in that are clearly the capital conservation buffer of 2.5% is still there, but the countercyclical buffer is now 0%, which I think is beneficial for all banks. Turning to MREL. We do not yet know what our resolution strategy is. We've not heard back from the Bank of England at this stage.

I think at the time of the announcement of the deal, we assumed the worst case full bail in. I think there is some quite interesting movements when it comes to MREL. Whether this is still the case in the current circumstances, I don't know, but the regulator has promised to do a consultation and a review of MREL requirements for smaller lenders, nonsystemic lenders such as ourselves.

I think that could only be positive news. But of course, I don't know what is going to be the time line at this stage for that. So I guess, no new news on MREL really.

And all I can do is just, as I have in the past, point to the type of requirements and transition arrangements that others who went before us have been given. It's certainly a minimum of 3 years. Others have been given 3 plus 2. But again, any sort of -- I can't be firm on any of that until we receive our requirement from the Bank of England. But we've had a number of good meetings and conversations with them to date. It's in their hands at the moment.

Impairments, I think I heard that you asked whether or not we were disclosing our economic scenarios and the probability weightings. And yes, we are.

I believe, and I will need to check. That's in the full version of the annual report rather than prelims, but we will take a look at that.

There is some change year-on-year. As you would imagine, we look very closely at the end of December.

So at that time, what the outlook looked like from a Brexit perspective and updated our scenarios accordingly with the help of our economic advisers. And we've also included what the impairment would look like, where we to weight each of those scenarios by a 100%.

And clearly, the severe downside scenario is more severe, I think, then current views on a relatively short-term but severe COVID-19 shock.

Did I forget any of your questions?

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [13]

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No, I think that was just a final point on integration. I think you were asking a confirmation of this sort of timing (inaudible) delivery. And I think I said it through the presentation. As we've done and as today, we are absolutely on track with all of our (inaudible) activities and the delivery, the (inaudible) that we expected to be at this stage.

Of course, (inaudible) resource is away from projects and change, well, and to ensure that we are operationally resilient at the time when we've got people working and onsite, at home, and potentially having to have staff cell isolating, et cetera, in the same way that every other company will face.

So we will update at the half year stage, but we are maintaining all of the changing projects we can. And we'll continue to do that as we go forward as much as its practical and possible to do. Okay -- sorry, go ahead.

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [14]

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I was just going to say that, of course, although the cost synergies coming out of this combination were good. That was never, of course, the main driver and business rationale, given that we are already, two very efficient organizations.

But clearly, it remains a focus for us, but never the main driver of the transaction.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [15]

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That's true.

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Operator [16]

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The next question on the phone line comes from Ian Gordon from Investec.

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Ian David Gordon, Investec Bank plc, Research Division - Head of Banks Research [17]

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Ian from Investec. Can I have three, please. Firstly, on capital. You've given us the statutory number of 16.0% for year-end. Are you able to give me the pro forma number, if I were to pro forma for the residual disposals you achieved in January, I assume that takes us closer to 17%. Second question, if my maths is right, your pro forma pre-provision profit covers impairments by just over 24x in 2019.

So other things being equal, that would seem to employ, you can multiply your impairment charge by 24 in 2020, still remain profitable and still avoid eating into your pounds million CET1 capital base.

If that is true, could I just tease out a bit more comment from you in terms of the impairment dynamics?

I think you told us the economic scenarios here are in the reporting accounts. I certainly haven't found it in the release this morning.

But I can't think of any mortgage book other than households, prime book in the U.S., which generated an impairment charge in excess of 200 basis points at a peak level.

So do you regard that as a fairly unfeasible level to which your conservative book could rise to even under this scenario?

And then the third question. We had some comments from the government last night, which -- well, I would regard as quite irresponsible in terms of the implied assaults on landlords and their property rights. I was wondering if you could provide -- perhaps provide a more sober commentary on your view of how the promise legislation might impact the dynamics between tenant and landlord?

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [18]

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Yes, Ian. I'll take that one, if I may, first, and then April will pick up on the sort of capital and impairment points.

I think the government went first with a -- have we got all lenders to sign up to repayment holidays on residential mortgages, which, of course, we were happy to put our hand up for in volunteered because we want to make sure from a conduct perspective and a short-term protection perspective, we look after customers as best we can. And then of course, there was a lot of lobbying, both from other political parties, the various landlord groups, the various tenant groups, groups that are interested in the changes, in the private rented sector saying, well, hang on a minute, what about tenants? Because there will be tenants that are cab drivers that aren't experiencing as many people wanting their cab at the moment and delivery people who -- people aren't ordering food, et cetera.

So there will be that dynamic, where a number of tenants find themselves in difficulty. And I think this is trying to join up between mortgage lenders who are financing the landlord. And a landlord who actually would want to, I'm sure, exercise some forbearance with their tenants to make sure that those 3 things are possible.

So again, we are one of the U.K. finance lenders that absolutely signed up to landlords who have tenants impacted through the COVID-19 scenario are able to ask their landlord for some forbearance. And their landlord can ask us for a repayment holiday for a period, and those things join up.

Clearly, you would expect that the tenant would make up the rent once things normalize, they're back in work or whatever it might be, back to work.

And of course, from a lending perspective, it's not a giveaway. It's a repayment holiday. So eventually, the interest that they don't pay has to be repaid.

But yes, I think, the government are coming under a lot of pressure. They are moving very fast and having to make a lot of decisions. At the end of the day, we need to support people through this, and we will play our part in doing that. April?

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [19]

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Okay. So let me address your capital question, first. I mean -- I think, the one metric that has to be viewed on a statutory basis is capital because that's how the regulatory rules work, and that's how the regulator views it.

So I don't think there's necessarily a concept of pro forma underlying capital. But I mean, I did remark earlier the numbers, the impact of that remaining fair value uplift being about GBP 230 million after tax.

But the -- that we haven't published the impact yet of the January sales.

But I think we've said enough in the various press releases for us to be able to help you with the maths.

One thing to bear in mind is that the profit element, again, that we enjoyed being about GBP 18 million on the OSB side, and on a pro forma basis, GBP 15 million, on the Charter Court side, a bit of caution there on a statutory basis to gain on the Charter Court decom was only GBP 2 million because we'd already reflected that fair value uplift.

So you're probably looking at about GBP 20 million of profit, going into CET1, but only once it's been verified, which the OSB is typically at our half year, and then you get the RWA release.

So I think we've put the average RWAs for each segment in the slides. And we've published the amount of mortgages we sold, which I think is sort of about [350 on 1] and similar size on the other one. So we can certainly help you with the maths after the call, if you would like. And then I think...

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Ian David Gordon, Investec Bank plc, Research Division - Head of Banks Research [20]

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(inaudible) maths make good sense. And I think those take (inaudible) pretty close to 17% but anyway.

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [21]

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Yes. You've already coupled the pieces already. So the -- I think you'd also asked about how we think about how impairment charges sort of work in these sorts of uncertain times. And as I'm sure you're all aware, IFRS 9 does really pull forward the recognition as soon as you see signs of impairments. Because you need to have lifetime loss model for your probability of default. A couple of things I've mentioned.

I mean, I did talk to you all through earlier our very sensible loan to values. So there are parts of the loan book right now that you could put 100% probability do fall off, and you wouldn't necessarily book an impairment loss.

But clearly, as we stress our books, there come some very, very severe economic downturns, while you do have extreme HPI drops, such as the Bank of England, the PRA's U.K. variance stress test, with unit close to 40% drop in HPI, unemployment going up, rates actually [finally] enough going up, but -- and then negative GDP, we've modeled all of that.

And though our impairment charge goes up, it in no way sort of impacts the sort of the longer-term solvency of the business.

And I agree with your comments earlier, about the what you would have to do to our impairment charge to really work your way through our profitability.

So I don't know if that helps. At the moment, I think the idea from the sort of the credit bureaus is that any payment holiday isn't viewed as traditional forbearance that would impact people's credit scores.

And the expectation currently is, therefore, that wouldn't be treated as a definition of default by banks, and therefore, not have the same impact on IFRS 9 provisioning, as a typical default situation.

But this is a very fast-moving area of discussion. That's our current feeling, and I'm sure that will play out as this situation plays out.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [22]

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Any further questions?

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Operator [23]

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The next question on the phone lines comes from John Cronin from Goodbody.

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John Cronin, Goodbody Stockbrokers, Research Division - Financial Analyst [24]

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A few questions. And picking up on some of the points that you've already touched on, first of all, in a policy -- in a governance and regulatory engagement context. And look, again, on the IFRS 9 pro-cyclicality point, and as I understand, it has been very clear in terms of your current interpretation of what a mortgage holding would mean for a definition of default and you feel it doesn't fall into that definition.

But I do understand the industry is quite exercised, but there are a lot of discussions going on, on an ongoing basis on this particular point.

And in a regulatory capital context, even if the wrong results emerged in an accounting context. Do you feel that it -- in the context of your engagement with the regulator? Do you believe that sense would prevail here in terms of these not -- these provisions not counting towards -- not impacting upon capital if they had to be taken. Secondly, just on the rent holiday points, that's been picked up on something that was missing from the tenant and landlord package?

And teams get your views on how likely that could be and in what form it would come in, presumably just for distressed tenants, who landlords would, in most cases, be working with anyway.

I would have thought the teams get your views on that. And then also in having passed to the point on MREL, look, any further sense at/or in terms of timing of engagement around that, I suspect, sort of, may have formed down the priority that's right now. But more broadly, do you think this COVID-19 crisis could accelerate the discussion in time with respect to revisiting MREL requirements for smaller banks, which seems very punitive? And then fourthly, just on IRB, again, look, anything you can say around any risks we need to be thinking about there to the cost line in terms of the spend? Or do you feel you've given us -- do you feel you're very comfortable around that part of the previous guidance on the point?

So that's kind of one bucket of questions. And then just two other quick ones would be on cost synergies. Are you comfortable with the guidance that you've given previously on the run rate and the days cost synergies well appreciated its the principal driver of the merger.

And then on asset quality, is there anything coming up in terms of your engagement with residential landlord -- residential customers or with landlords who are experiencing difficulties already in response from the current crisis? Anything we need to be thinking about that, any rep slide.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [25]

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Okay, John, thank you very much. A comprehensive list of questions. Glad I have a larger piece of paper to group them all down on. I'll tackle a few of them.

I mean, firstly, the government regulatory engagement piece of the IFRS 9 process for (inaudible) point, where the industry is going in terms of its lobbying, et cetera. I mean, I think the industry is doing a lot of hard lobbying on saying, look, we've got this Basel IV thing looming. We've got all of this stuff to deal with. You can't just keep expecting financial services businesses to keep loading, loading, loading, when actually markets aren't necessarily there for us to achieve it and making capital rules more punitive, particularly for large IRB banks, et cetera, under Basel IV is not a good thing to go.

And I think -- I do -- and I think that lobbying will continue. The IFRS 9 point is interesting because I read something very recently that Mark Carney has actually sort of made a statement pointing out to the accountancy firms that there are carve-outs in IFRS 9 or in some of the accounting rules for exceptional circumstances pointing out, I think that this is one.

So again, I think that's an area that has to run and run. We've clarified our understanding of our treatment on repayment holidays with our regulator. We haven't had pushback on what we believe our understanding is. And I think broadly, it's helpful to both the consumer and to us in the short-term to be able to provide it as a holiday rather than an event of default. Sort folding that into the rent holiday piece and the likelihood, I mean, I'm a buy-to-let landlord.

So if I have a tenant in one of my properties that comes to me and says, I'm out of work at the moment. What do you want to do? Clearly, you would expect that a tenant that has been in work long term, but have suffered a short term difficulty because they're obviously [zero] contract or something of that nature in this situation. And we're all hoping it is a short-term scenario, I would probably much rather exercise forbearance with my tenant, then I would have to worry about whether at some point, I would have evict them, and so on and so forth. Landlord-tenant is a 2-way relationship. And I think, this is an opportunity for landlords to look at that and do the right thing by their tenant.

I think, this is a situation where everybody just needs to come together and help each other out the best they can.

The banks will play their part in that, in terms of holidays for the landlords. And I'm sure the landlords will play their part in that because of holidays for the tenants.

And of course, we'll ask the question, we're not just going to give a landlord a repayment holiday because he tells us, we'll ask the question and make sure that there is validity to the claim, if you like.

I'll ask April to come back on MREL, in sense of timing and IRB cost and the risk to that, et cetera.

You -- sorry, and on the cost synergy run rate. You asked a final question on asset quality. Have we seen any inbound?

What we have seen through our lending call centers at the moment is a level of inquiry, I think, from people who are concerned, not people are yet in a problem situation, but I think wanting to check the precise mortgages or Kent Reliance mortgages is a lender that would be able to do a repayment holiday in the event that they face difficulty.

So we've seen quite a bit of traffic in that respect. And of course, our answers to those borrowers are positive.

But I think, this is a comfort blanket checking scenario right now, more than it is an actual life problem for people. But of course, the longer this goes on, the more likelihood is it for some, it will become a life problem. So it just gives you a sense of what I think -- I assume all lenders will be experiencing in the current climate.

So that brings us back to the MREL point, the IRB, the risk to that in terms of cost and the cost synergy point, April, over to you.

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [26]

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Okay. MREL, timing of engagement. There's really nothing else I can tell you, I wish, I could. All I know is that we haven't heard yet. And of course, whether this is the top priority for the Bank of England, right now, I couldn't possibly comment about how they are doubling what they want to prioritize. I really hope that when they do their consultation, that there is some benefit for smaller lenders like us, particularly those that already have fairly punitive capital requirements under a standardized approach, which I guess, is a nice segue into your next question, which is IRB related.

I think we've spent considerable money across both banks in 2019 on the IRB project and actually on further developing our IT infrastructure.

And you saw that our management expense ratio nevertheless went down. So I don't think there's anything in there that you should be concerned about, that we can't absorb in our business as usual, economies of scale. And it's really pleasing to me to see some of them may be listening. So without sparing their blushes, just the high-quality of the teams we have across the 2 organizations who are now one team working together, pooling expertise.

We've consolidated our external advice, which I think is helpful and working very well together to prepare our application.

And I think, I've commented in the past that when it comes to this, we can look at perhaps some of the mistakes others may have made, which is, you make sure you've got every eye dotted and every T crossed and you've had several engagements with the specialist team at the PRA before you put in your application.

And the higher the quality of the application, the quicker it goes through and the better the result you get at the other end. And that's still our philosophy. And I think we're now facing even before the current crisis, we were facing, I think, more delays from the EU or, in fact, the U.K. adopting the new Basel rules as well, which I think the more time you have, the better.

But pleased of the progress and the cost is money well spent, but it's not something that you will really see coming through the numbers, given the size of our operations, particularly now.

And I think, you were saying how confident do we feel on the delivery of cost synergies. Apologies, what was your question again on the cost synergy side?

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John Cronin, Goodbody Stockbrokers, Research Division - Financial Analyst [27]

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Sure, sure. Its in terms of the confidence around the raise cost synergies that you previously pointed to. Just wanted to get an update in terms of your expectations there?

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [28]

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Well, I mean, if we haven't had the COVID-19 unprecedented situation, I could have answered that question.

I think Andy has already touched on it. To date, we're very pleased with progress. But as to what impact this crisis may or may not have on the timing of those initiatives, it's really impossible for me to say right now.

I mean, I wish I had a crystal ball and I could tell you, but I don't, unfortunately. But so far, so good.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [29]

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Okay. Further questions?

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Operator [30]

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The next question on the phone line comes from Portia Patel from Canaccord.

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Portia Anjuli Patel, Canaccord Genuity Corp., Research Division - Analyst [31]

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Just two, please. Firstly, just to clarify on the COVID-19 measures. Does the 3 mortgage repayment holiday apply to outlet mortgages purchased by limited companies as well? Or is it just for individual landlords?

And secondly, Andy, you touched on this in one of your answers. So I was just hoping to know what percentage of the net loan book is reaching the end of the fixed period in each of FY '20 and FY '21? So we might get a sense of the minimum originations you might expect to write in the next 2 years as these likely be mortgaged?

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [32]

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Okay. Thanks, Portia. I mean, both excellent questions. The answer to the -- would we offer a holiday to a limited company structured borrowers as well as an individual? The answer is yes, it would be grossly unfair, not to. Limited company buy-to-let lending is a structural methodology of doing it, but the individual behind the limited company is on the hook with a personal guarantee to us in the same way that an individual borrower is and therefore, we should treat them fairly and equally. So yes, is the answer.

And in terms of (inaudible) net loan book coming up for renewal on product, I don't have that data. We can find it for you. And Alastair will have a look or we can give you an idea. But I think, it's safe to say that the Chart Court business has a lot of 5-year fixed product in it. And the OSB business has increasingly been rising a lot of 5-year fixed.

So by dint of that, the kind of renewals for the next foreseeable period are less so.

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Portia Anjuli Patel, Canaccord Genuity Corp., Research Division - Analyst [33]

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Okay, that's helpful. If there is any data you could provide after the call, that would be very helpful.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [34]

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Yes, we'll see whether it's something we have made public in any way or whatever, it might not be, but we'll have a look and Alastair will come back to you.

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Operator [35]

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Next question comes from Edward Firth from KBW.

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Edward Hugo Anson Firth, Keefe, Bruyette & Woods Limited, Research Division - Analyst [36]

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Just a very quick point of detail. Andrew, you may kind of gave us the [constituted] elements of the CET1 or minimum CET1. Could you just tell me what is your minimum CET1 today, just so we've got that sort of the regulatory minimum, I guess, and then where your target fits against that?

The second question was, how does -- how do the AT1 conversion work? I know probably from your perspective, you're not really thinking about that, but if I'm looking at your -- the yields on your AT1s, I mean, they're 20% or something. So how does that -- can you remind mechanically what has to happen and at what stage those do convert, if they do convert and how the pricing is done, et cetera?

And then my third question was, I know a lot of banks are telling us, if nothing -- if we would not go into the market to raise any funding today, or we're going to do nothing, we could last x number of months, x number of years, et cetera? Could you -- have you got a set of similar idea in your own mind, as to -- if the market is now just closed forever, how long would it be before you effectively run out of money, so to speak?

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [37]

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I'll ask April to tackle those questions. But I mean, the difference between the balance sheet business and the cash flow business. And of course, we're a balance sheet business, is that you don't have to do any new business in order to continue to throw off profit. And a loan book of our size, GBP 18 billion plus would take quite a long time to run down. So this organization would spin-off profit for a significant length of time, even if we did no new business and looked for no new contracts. But in terms of -- I mean, we're not going to put a number of months on that or years or whatever it might be, but it's a large balance sheet of secured loans with a good term and duration baked into them.

I'll ask April to look at the ...

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Edward Hugo Anson Firth, Keefe, Bruyette & Woods Limited, Research Division - Analyst [38]

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And yes, don't get me wrong. I'm not -- its not necessarily my view, particularly. But -- and I guess, if I look at loans to deposits, you were at 114% or so, which certainly given to where banks have been and other crisis is very conservative.

But I'm just trying to get some sense as to what, and if you -- people look at you share price, your're clearly factoring it in absolute catastrophes -- in the catastrophe scenario now. And I'm just trying to think in my mind how that would play out and what would be the sort of [coincidence] that would turn you over?

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [39]

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I mean, I think just adding to that point though, Ed, I mean, all banks, I think, are in a very different position now than they were when we sort of moved into the global financial crisis of 2008, '09, banks are better capitalized, they're more liquid. Our funding structures are more diverse. For us, retail funding has always been a key part of the equation for the reasons that you're not relying on large wholesale market renewals and, therefore, the desire for a wholesale market to be opened in those circumstances.

So I think, the banking industry is just a much better place to full stop to face this crisis than the global financial crisis.

And hopefully, this one will be a significantly shorter one.

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [40]

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I mean, I'm happy to give a little bit more color about how we think about our liquidity, if that helps. I mean, I think, one other thing I would contrast this today versus the financial crisis, is of course, there is a lot more protection for depositors up to GBP 85,000, and they understand that.

And I think that, that dynamic is very different from what it was back in 2008, 2009 where there wasn't full protection and no one knew they had it anyway.

So I think borrower behavior is probably quite different. And then we, obviously, as a bank, just as we stress test our capital, we do a lot of stress tests on liquidity and have some pretty harsh economic as well as idiosyncratic stresses, and we have to work pretty hard to come up with severe stress tests and reverse stress tests on liquidity. And we have access, of course, with the banks [with lot of] contingent funding. So not only do we hold quite considerable buffers, which at the moment, is largely with the Bank of England. We're not -- we haven't got cash out at -- as other banks. We are sitting at the Bank of England. We've got considerable liquidity buses. We have a few treasuries. We have a small AAA RMBS portfolio as well, but it's a very, very high-quality liquidity portfolio. And then we have securities, mortgages and other preplaced with the Bank of England that we can draw down against the BAU index long-term repo.

I think Andy mentioned earlier, we drew a lot of contingent cash, which is with the Bank of England, just in case. This week -- and we have other preplaced collateral. The Charter Corp. business has committed wholesale funding lines. There's a lot that we have as a bank in our arsenal, and it clearly is something that we do lots of stress testing on, to give you a little bit of color.

In that sense, we're probably no different from a lot of banks, but it is something that we look at very carefully here. I think you also asked about -- I wasn't too sure were asking about a target CET1 ratio because obviously...

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Edward Hugo Anson Firth, Keefe, Bruyette & Woods Limited, Research Division - Analyst [41]

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What does that (inaudible) yes...

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [42]

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I think that's -- I mean, you can look at where both banks ran. I mean, if I look at OSP, we always said we typically run about 13%, but that's because we have some AT1, and we have some Tier 2, Charter Court ran at a higher CET1 because they didn't have AT1 or Tier 2. So I think let's put COVID to one side and just think what would we have been doing?

Well, we had been looking at optimizing our capital base, potentially rebalancing the CET1 versus at AT1 and Tier 2, depending on the pricing in the market versus our perceived cost of equity.

And we would have been looking at -- once we got our resolution strategy, thinking about the right time to start thinking about holdco issuances. And that's certainly still on the medium-term agenda.

So it's quite hard for me to give you CET1 guidance, when actually we would probably be going out and saying, maybe there's an opportunity to rebalance the capital stack in due course.

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Edward Hugo Anson Firth, Keefe, Bruyette & Woods Limited, Research Division - Analyst [43]

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Sorry, I think...

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [44]

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Did I misunderstand your question?

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Edward Hugo Anson Firth, Keefe, Bruyette & Woods Limited, Research Division - Analyst [45]

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(inaudible) Yes. No, and you probably put it in the announcement, I apologize, we're still running around that a bit, but if I take out the countercyclical buffer, except that you mentioned you had an integration offer and that you give it a Pillar 2A number. So if I just add those all up, what is the regulatory bit of them?

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [46]

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Okay. Well, we haven't disclosed every single piece of it, but the material elements we have. So you've got your Pillar 1 is 8%. We've got 1.67, which is your Pillar 2A. The integration add on is in the scheme of our overall capital, not huge and of course, hopefully temporary as we go through the integration. Then you've got the capital conservation buffer of 2.5 on top. I mean, I think that should give you a good sense. And obviously, you know the sort of the minimum CET1, what you can see [AT1 4] and [2 4], et cetera. But if you need any help have, I'm happy to...

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Edward Hugo Anson Firth, Keefe, Bruyette & Woods Limited, Research Division - Analyst [47]

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No. that's fine. That's perfect.

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [48]

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And then I think, again, let's take off-line. I mean, there is an AT1 conversion. It's a CET1 ratio trigger, which is reasonably low, but I will perhaps take that one, offline. Yes, that's okay. I think -- yes. Did I understand anything? Or is that...

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [49]

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No. You covered all the points, I think. Could I just check with our operator, if you're able to tell us how many remaining questions there are. I'm just conscious of the time.

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Operator [50]

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We currently have 3 other participants waiting to ask questions.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [51]

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Okay. I think we will take the questions from those 3 participants. And then we -- I think in the interest of time, we'll have to call it. And then if anyone wanted questions answered that they didn't, please e-mail them in via the IR team, and we'll endeavor to come back to you during the course of the day. Okay. Let's take the next one.

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Operator [52]

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The next question comes from Aman Rakkar Barclays.

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Amandeep Singh Rakkar, Barclays Bank PLC, Research Division - European Banks Analyst [53]

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Just a couple of questions actually. So can I just ask the -- I understand the uncertainty regarding COVID and the inverse to give guidance. Can I just press you for a bit more detail there. So what exactly -- when you guys think about what prevents you from giving guidance from here. Is it a lack of understanding around the volumes that you guys can deliver this year? Is it the net interest margin because of uncertainty around what the Bank of England can do and/or the effects of what's already been announced? Or is it the impairment charge?

And the second one was basically -- is [legal] to expect that we might be able to get some medium-term targets at half year? Or is it a function of kind of how protracted this shutdown period is for this lingering uncertainty? Or basically, can we look through this and potentially get some detail a few years out?

And then the last one was on asset quality. Again, sorry for coming back to this topic. You were talking about pandemic scenarios being within what you internally stress for.

I do -- that was interesting. So if we were to look at those global financial crisis and someone like Paragon, their loss experience on a similar loan book was kind of 40 to 50 basis points, at its peak.

Is that a number that you guys would recognize as being relevant to you guys? Presumably, it would be lower than that in terms of what you're currently looking at.

Albeit, I do appreciate the uncertainty around the ultimate fall out of this COVID scenario.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [54]

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Okay. I mean, I think just on that, I think, Paragon had a strong financial crisis, I think, in terms of its arrears performance on its portfolio, and therefore, the impairment charge that they were booking. I think there are some similarities in the loan book between Paragon and this organization. I think you would have to draw your own conclusions from that. The medium-term targets at the half year stage, will be coming out with guidance at that point, if the world has started to normalize by then, of course, but we don't as I've said earlier, we don't have the crystal ball to know the timing on this. April, did you want to comment on that?

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [55]

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Yes. I mean, I think we just -- it would be fabulous if we were in a position where we had a bit more stability and certainty.

And if we do at that stage, of course, we will comment accordingly. But I think on guidance, I think you listed 3 things which are uncertain as we look forward, volumes, margins and impairments. And I agree with that list.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [56]

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Next one.

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Operator [57]

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The next question comes from Robert Sage from Peel Hunt.

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Robert Ian Sage, Peel Hunt LLP, Research Division - Analyst [58]

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Just two very quick questions, actually. First of all, I think, that you mentioned it how you'd sort of reprice deposits following the interest rate falls. And I was wondering whether you comment in terms of whether you've seen any sort of redemptions post that?

And on a similar vein, I was wondering, given the fact you've just given some sort of guidance on your sort of current deposit pricing, what is your sort of strategy towards loan pricing at the moment, given all of uncertainties.

I fully accept that there's probably not so much on new lending going on, but certainly on the refi side of the business, I was sort of wondering whether you are looking to be increasing lending spreads at this stage.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [59]

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I think the relatively quick answer to the question, Robert, is we actually haven't changed any pricing yet. We have a bit of a tendency to sit back and look at where everyone else lands from a competitive dynamic and then position our range within the well-known names, within that marketplace.

We are starting to see now other providers clip their savings rates, but not too many have sort of come out of the traps and shown their leg in the window yet.

So we will wait for a little bit more of that. And of course, our loan pricing in terms of our SVR, we have some control over when we move that, and of course, choice indeed is to whether we do. So we're reviewing options in that respect.

And as of yet, we haven't made any changes to our front-end pricing, but we are doing an overall review of pricing criteria, LTVs, et cetera, and we'll conclude that exercise out, very shortly. You can see where our pricing lies because it's pretty transparent if you dive on the websites and pull the product guides off. And to date, we haven't made those changes.

Okay, and I think...

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [60]

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(inaudible)

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [61]

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Sorry...

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April Carolyn Talintyre, OneSavings Bank Plc - CFO & Director [62]

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Yes. I was just going to add that to some extent, as Andy said earlier, we're looking at our risk appetite and our criteria in really a very similar way to the way we looked at our lending after the Brexit vote, which is to focus on those smaller businesses that we have, such as bridging now asset finance and that tend to be more cyclical and looking at our criteria. So that's kind of the focus, very similar to the focus we had post Brexit.

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [63]

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Okay. And then I think, there's one final question that we decided.

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Operator [64]

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The final question is a follow-up from John Cronin.

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John Cronin, Goodbody Stockbrokers, Research Division - Financial Analyst [65]

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I loved another one, before I realized the time pressure. And Look, again just to revisit on asset quality for a second. I just wanted to know, particularly on not to buy to -- that stuff, but the bridging the resi lending portfolios. Just around any emerging signs of stress as most particularly bridging and as you said that stuff is all well collateralized?

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Andrew John Golding, OneSavings Bank Plc - Group CEO & Director [66]

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Yes, it is, John, you're quite right. And it's collateralized very, very sensible LTVs. You don't lend the same LTVs on a loan where the proxy is effectively the repayment tool as you would on a loan where you've got that sort of borrower income covenant that's paying the loan. I mean -- and no emerging trends in respect to that, I think it's fair to say. And in terms of resi, as I mentioned to someone earlier, when we were touching on that question, no emerging trend, but we have seen a little bit more increase from residential borrowers calling in, just wanting to know whether if they do face issues, we will be supportive with repayment holidays. And of course, we're confirming that we will.

Okay. And at that point, we will say thank you very much to you all for dialing in. I generally crack a few jokes during these things, today, didn't see any right -- the right occasion to do that. But I do have a mental picture of lots of analysts that are out in the community and there pajamas at home this morning listening to this call. I hope, I'm wrong. But please do stay safe and well, and thank you very much for taking the time.