18th Sep 2007 07:01
Paragon Group Of Companies PLC18 September 2007 18 September 2007 THE PARAGON GROUP OF COMPANIES PLC PRE-CLOSE TRADING STATEMENT --------------------------- The Paragon Group of Companies PLC will shortly be meeting with analysts aheadof its close period for the year ending 30 September 2007. The following is anupdate on the trading position of the Group ahead of the year end and followsthe Interim Results which were announced on 22 May 2007. Trading performance------------------- Trading activity has been strong throughout the year with the profile of secondhalf trading being similar to the first half of the financial year and to theprevious year. We have seen good growth in buy-to-let lending volumes over theyear, expected to be some 30% higher than the previous year. Lending hascontinued to contract in our consumer lending areas, as the Group has continuedits policy of strongly promoting buy-to-let lending whilst tightening consumerlending. Overall, lending volumes for the year are expected to be some 25%higher than last year. Total loan assets are expected to be some 30% higher. In addition to tightening criteria and limiting consumer lending volumes, theorderly run down of the closed books has continued, assisted by further smalldisposals from the book of unsecured personal loans. As a consequence, despitebeing in a period of rising interest rates, arrears in the ongoing consumerbooks have remained low and stable. The number of arrears accounts in the closedbooks has fallen. The credit performance of the buy-to-let assets remainsexemplary with an indexed LTV remaining low at around 65%. The overall creditquality of the Group's assets has seen further year on year improvement. Market background----------------- Recently published data by the Council of Mortgage Lenders shows the continuingresilience of the buy-to-let market, both in terms of absolute growth and alsowhen set against a softening owner-occupier market. According to the CML,buy-to-let lending represented 12% of all new mortgage advances in the firsthalf of 2007, its highest ever level. The stock of buy-to-let mortgagesincreased by 14% since the second half of 2006, accounting for one in ten of alloutstanding mortgages. Paragon's share of the buy-to-let market rose to 9.1%during the first half of 2007, maintaining our position as the third largestlender, both by balances and by origination levels. CML data also confirms the continuing superiority of buy-to-let creditperformance with both arrears and possessions significantly lower than for themortgage sector as a whole. The CML attributes this quality differential in partto 'persistently strong tenant demand, shorter void periods and rising rents'. The Royal Institute of Chartered Surveyors confirmed in its latest releasethis month that buy-to-let landlords were experiencing 'record rental growth'.In a similar vein, the latest research from the Association of ResidentialLetting Agents, also published this month, observed that 'tenant demand nowoutstrips supply in all areas of the rental market'. Both organisations notethat tenant demand has been boosted by higher borrowing costs and the growinguncertainty in financial markets, as well as consistent factors such as highlevels of migration from the European Community. Funding------- In common with many other lenders, the Group utilises securitisation for itslong-term funding. This provides matched funding to the maturity of theunderlying loans. During the course of the year Paragon successfully completedfour issues, three securitising buy-to-let assets and the other the residualportfolio of owner-occupied loans. The most recent of these, Paragon Mortgages(No. 15) PLC, a £1.0 billion transaction backed by buy-to-let loans, wascompleted in July just ahead of the current period of turmoil in the banking andcapital markets which has affected the normal operations of the securitisationmarket. We anticipate that liquidity will return to this market in due coursebut past experience suggests that pricing may rise for new issuances goingforward. We do not raise finance from retail deposits. Our new business flow isaccommodated within our warehouse facility provided by a small group of banks,which has current capacity of some £1.8 billion, adequate at current rates ofnew business to fund lending into 2008. For the avoidance of doubt, Paragon has no involvement in the US mortgage marketor any investment, directly or indirectly, in US sub-prime mortgage-backedsecurities, SIVs, CDOs or similar investment vehicles. Results------- Pre-tax profits for the 11 months of the year to the end of August 2007 were inline with plan and consistent with full year profits broadly in line with marketconsensus. Underlying profitability for September remains on track, although the currentsevere dislocation of money market rates from the official bank base rate mayhave an impact on rate sensitive items, such as the fair value for hedging gainsand losses. The value of this item, which is marked to market at closing rates,will not be determined until the year end. Clearly current market conditions have disrupted the normal workings of themoney, banking and capital markets. Whilst we expect a return to marketstability in due course, the Board will continue to closely monitor developmentsand will apply its traditional prudent management approach to the origination,servicing and funding of its loans. The Board of Directors intends to announce the preliminary results for the yearending 30 September 2007 on 20 November 2007 and a full report on the progressof the Group will be issued at that time. For further information, please contact: Nigel S TerringtonChief ExecutiveTel: 0121 712 2024 Nicholas KeenFinance DirectorTel: 0121 712 2060 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Paragon Group