Real relationships beat wild times for old-school operator

JULIAN HODGE BANK

The Cardiff-based private bank advocates building long-term relationships with experienced property investor clients, reports Doug Morrison, in the latest in our series on specialist lenders

In the post-financial crisis era of property lending there is much earnest talk of a return to old-fashioned relationship banking to give some ballast to the fragile UK recovery.

Kevin Beevers, Julian Hodge Bank’s new commercial lending director, is an advocate of relationship banking, but says this Cardiff based business never moved away from it.

“When the bank was established in 1987, that was the universal UK banking model,”says Beevers. “Much of the industry moved away from that and in some respects is reaping what it sowed, whereas Julian Hodge Bank placed a consistent commercial lending strategy throughout that period.

“There are potential clients out there who value a close, responsive relationship in a private banking environment. We don’t want to be mass market. We don’t need to take on hundreds of deals every year.”

Maybe not hundreds, but Beevers is tasked with helping the bank “double in scale and profitability” in the next five years – no mean feat for a small, provincial bank whose latest accounts show a 20% pre-tax profits rise, to £3.1m, in the year to 31 October 2012.

This challenge prompted Beevers, 45, to move last month from HSBC, where he had spent his entire career and risen through the ranks to deputy head of corporate banking in Wales and the South West. The chance to sit at an independent bank’s top table was too good an opportunity to miss, he says.

The bank, part of South Wales’ financial services establishment, was founded by the late Sir Julian Hodge, better known for launching Chartered Trust and Bank of Wales, both now part of Lloyds.

Julian Hodge Bank remains resolutely private – the family retain ownership alongside a charitable trust. Its revenue is broadly split between property lending and a consumer business, including savings and equity release products. Property lending is funded from retail savings.

The focus is on commercial mortgages and investment – evenly split between shops, offices and industrial – although Beevers says residential is also part of the mix.

The loanbook is weighted towards the bank’s south Wales/South West heartlands. But it has recently pushed into the more buoyant London and South East, where it wrote £20m of loans this year, including one for the £7m purchase of 409-410 Strand in the West End, for an £18m residential and restaurant scheme by Enstar Capital, Pacific Investments and Penna Property Partners.

Despite the growth plans, there remains an air of circumspect, old-school banking about Julian Hodge Bank, compared with many of today’s overtly PR-conscious property lenders.

Detail is a precious commodity in Cardiff. Beevers says the property loanbook is “in the hundreds rather than tens of millions” and that the bank is “not overly prescriptive” in writing loans, which range from £1m to £25m. The loan-to-value average is 60-70%.

Beevers: “We’re not competing on the high end of the risk curve... We’re looking to do  sensible business with relationship focused clients”
Beevers: “We’re not competing on the high end of the risk curve… We’re looking to do sensible business with relationship focused clients”

It is “a private bank-style service” with “the scope to be flexible”, Beevers says. He adds: “Our target clients are quality operators with experience and credentials, looking to do sensibly structured deals with professional, responsive counter parties. We’re not competing on the high-end of the risk curve through audacious structures or poor covenants. We’re looking to do sensible business with relationship-focused clients.”

The bank’s regional property exposure may well benefit from institutions’ growing interest in markets outside London, in a search for value this year and next. Economic growth, albeit slight, also helps occupier demand.

“It would be wrong to say it’s fizzing but more things are happening than 12 months ago,” says Beevers. “Given the momentum I’d expect next year to be better.”

Beevers is also optimistic about the bank’s fledgling renewable energy business. As he suggests, its strategy of backing wind turbine developments then refinancing them once they start generating long-term income is analogous with most property schemes.

With property as with energy, long-term relationships are vital. “The HSBC culture I was schooled in was that we wanted to be around for a long time, not a wild time; that resonates with Julian Hodge Bank,” says Beevers. “We want to make profits in a sustainable way that positions the bank to be larger and more profitable in 20 years’ time.”

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