European Morning Credit: Today in European Credit

Research evidence excerpt

European Morning Credit: Today in European Credit

Financials

Lloyds (LLOYDS): unconfirmed interest in Aldermore

Lloyds Banking Group is reportedly considering a bid for UK specialist bank Aldermore

(not covered), according to an unconfirmed Sky News report yesterday. Aldermore’s

small business lending and project finance are reportedly the key attractions for Lloyds.

Neither bank has commented on the unconfirmed report.

Bottom line

An Aldermore sales, should it happen, could revive merger interest in UK challenger

banks. The bank is in the unique position of having an owner which has publicly stated

its intention to sell it. Sky’s report states there are reportedly multiple parties

considering a bid for Aldermore, including private equity firms which should request

information once the auction process begins, as well as Shawbrook (not covered).

Aldermore represents ~5% of Lloyds’s RWA so would be easily absorbable.

For a potential challenger bank bidder not already having bail in as a preferred resolution

strategy, cost or revenue synergies of a potential merger would likely be partly offset by

the need to issue senior debt to meet MREL requirements once the £40bn asset

threshold is passed. (Exhibit 1). We initiated coverage on OSB and Paragon two weeks

ago, with a preference for the latter (see report). We are e.g. UW OSB’s £9.993% T2.

Issues to consider

• On 7 April 2026, South African banking group First Rand, which fully owns

Aldermore since 2017, decided to sell Aldermore after it raised its motor finance

provision by a further £510mn to £750mn. It considered the business case to own a

UK consumer finance activity was no longer ‘within its risk appetite’ after the FCA’s

30 March policy statement on a motor finance redress scheme. First Rand made