Investors say yes to TSB Banking

About one in 10 new bank accounts opened in the third quarter happened at a branch of TSB, according to TSB Banking Group. That's way ahead of the long-term target, and explains why customer deposits grew by £0.5 billion to £24.2 billion. Customers will finally be able to buy mortgages from their local mortgage broker early next year, too, which should prove a boon for the undervalued challenger bank.

Quarterly results were largely in line with expectations. So-called management profit before tax surged by almost a third from the previous quarter to £41.6 million, up 8% on last year. That was almost double City estimates, largely because TSB cut costs by £12.8 million, although management reckon expenses will still hit £700 million for the full year.

There was also a slight beat on loan balances, with the franchise loan book down just 1.6% to £19.1 billion. TSB's share of new personal current account openings grew 50 basis points to 9.7%, and in news that part-owner Lloyds Banking will cheer, impairments were down 3% on the prior quarter at £23 million.

Crucially, TSB will begin testing its new mortgage distribution platform in December ready to receive the first mortgage applications through the intermediary channel in January. According to Investec Securities, pricing on new mortgages has improved by 0.1% year-to-date while banks' funding costs continue to decline.

At 262p, TSB shares have fallen by 12% in the past month compared with peers like Barclays, Lloyds and Royal Bank of Scotland, which have all done much better. Yet TSB trades on just 0.8 times tangible net asset value (TNAV) of 327p. Tha's a discount to rivals, which looks unjustified, especially given it carries less risk than others and there's a likely boost next year from new mortgage business.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.