Atom CEO on banking during a pandemic and UK property 'bubble'

Mark Mullen starts our interview with a contradiction — 2020 has been good for his bank but he wishes it had never happened.

“We’ve had a pretty successful year as a business, in terms of the progress we’ve made in the service we deliver customers, the growth of earnings, the implementation of our strategic projects,” the Atom Bank chief executive says.

“It’s been a good year. But it’s happening against a backdrop of destruction of our broader society. It’s just been one of those years where you wish it had never happened.”

COVID-19 has devastated some sectors — hospitality, entertainment, and accommodation — while others have boomed, such as supermarkets and online retailers.

Mullen’s sentiment will be shared by some other business leaders. But among bank bosses, his experience is a rarity.

Banks have been firmly in the losers column this year. Big lenders have seen their share prices plummet and been forced to set aside billions to cover potential losses. Some of Atom’s challenger bank rivals have seen their main revenue streams dry up and been forced to lay off staff.

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Atom’s success has come in part because of a quick pivot to business lending early in the crisis. The bank signed up as an accredited lender under the coronavirus business interruption loan scheme (CBILS), a government-backed support scheme. Atom has lent £125m ($165.9m) to businesses under CBILS, growing its business lending book by roughly 50%.

“We were having a good year in business lending, we’ve had a turbocharged year in business lending through CBILS,” Mullen said.

Mullen, the former boss of First Direct bank, co-founded Atom in 2014 alongside Anthony Thomson, the cofounder of Metro Bank. Atom was part of a new breed of digital only banks that sprung up in the UK over the last decade and has grown to become the biggest by balance sheet, with over £4bn in customer deposits.

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Durham-based Atom offers savings products and traditionally focused on mortgage lending. It was able to scale up its business lending in part because the mortgage market ground to a halt. Like every other bank in the UK, Atom stopped writing housing loans in March.

“Conveyancers stopped conveyancing and valuers stopped going out and visiting properties,” Mullen says. “There’s a number of things we can solve but we can’t solve a conveyancing problem.”

Atom re-entered in the mortgage market in September and has recently been moving up the risk register with higher loan-to-value mortgages. It began writing mortgages with loan-to-values above 90% last month, a corner of the market most mainstream lenders have yet to re-enter.

The backdrop is a booming property market where activity levels and prices are at record highs. A combination of a stamp duty holiday and pent up demand during the pandemic created a surge of activity once restrictions began to ease.

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Mullen has some concerns about what happens when the stamp duty holiday ends next year.

“When those stimulus and safety net get removed — the proverbial music stops — what happens?” Mullen says. “That’s a bit like a game of spin the bottle — you just don’t know what’s going to happen but bad things could happen. It depends upon who you’re facing off across the table. A lot, I guess, is going to come down to: where’s unemployment going?”

Experts think house prices will fall next year even as the economy rebounds. The Office for Budget Responsibility (OBR) predict house prices will drop by 3.5% next year, after growth of 2.6% in 2020.

“Right now, I think it’s probably a little bit of a bubble caused by essentially government subsidisation and support,” Mullen says. “I think it’ll correct, but I don’t think it’ll crash.”

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For now, the combination of a strong mortgage market and bumper business lending means Atom is on track for a good year. The bank should post a net interest margin of 1% “with a bit of a fair wind,” Mullen says, up from more or less zero last year. For comparison, Lloyds (LLOY.L), the UK’s biggest mortgage lender, has a net interest margin of 2.8%.

“It’s no longer a question of whether the model works,” Mullen said. “Once you get to there, it’s obvious the model works.”

Atom made an after tax loss of £66.4m last year on net income of around half a million pounds. Like other challenger banks, Atom is now focused on getting the business into the black to ensure its sustainability.

“We are very much focused on getting to a breakeven stage, probably not next year but probably in the early part of 2022,” Mullen said. “It doesn’t require a miracle.”

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Atom hopes to go public in 2022. For now though, the bank is in talks to raise new funds from investors privately — reportedly as much as £150m, according to Sky News.

Mullen confirms that Atom is talking to potential investors but won’t be drawn on how much it might raise or when any deal might close, saying challenger banks are always thinking about capital.

“Are we raising capital? Yes,” Mullen says. “But if you’d have asked me that question 18 months ago I’d have said yes.

“We’re not in a hurry to raise capital right smack bang in the midst of a crisis. We’re having conversations with our investors, we will look to conclude a capital raise next year and we will try and do it when market conditions are at a more favourable point than they’re in at the moment.”

Atom’s biggest investor is Spanish bank BBVA (BBVA.MC), which recently held merger talks with local rival Sabadell (SAB.MC). Sabadell owns TSB and the merger negotiations led to speculation that Atom could be merged with the UK high street bank. BBVA and Sabadell ultimately ended talks when they couldn’t agree on a price but Sabadell has put TSB on the block in any case. Could a merger still be on the cards?

“When people talk about M&A I scratch my head and think: for whom?” Mullen says. “Is this a good thing? For what?

“I don’t believe that M&A or further industry consolidation is doing much for customers because I don’t think it’s done much for customers in the first place.”

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UK challenger banks only exist because consolidation created to poor outcomes for customers, Mullen says. The empire building in the banking sector that led up to the 2008 financial crisis is a strong argument against this mode of expansion.

Furthermore, heavily consolidated industries like tech are facing a litany of customer concerns and problems.

“Show me one of those big players that everyone is delighted with. Show me one of those companies where market dominance is working out swimmingly.”

Mullen is focused on growing Atom as “a pretty traditional” savings and loans bank. That mission statement won’t change in 2021.

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“Of course there’s plenty of M&A opportunities for us, for lots of other banks in the UK market but I have to concentrate on executing our strategy,” Mullen says.

For now, like everyone else, he needs a break.

“I’m off for two weeks and I am basically over and out,” he says happily. “I don’t care if the building burns down – don’t call me.”

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