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CASE STUDY

Leading a Banking Application with the PRA for Pepper Money

Company Overview:

Pepper Money, a prominent lender in the UK's mortgage industry, embarked on an ambitious journey to evolve from a lending business into a fully-fledged bank. This project required not only a strategic shift in response to the expected increased level of regulatory oversight but was also being pursued at the same time as executing and integrating a material business acquisition which greatly increased the complexity of the financial model we were appointed to develop in support the planed application for banking authorisation with the PRA (Prudential Regulation Authority).

 

Our Partner at Pepper Money:

Laurence Morey, CEO at Pepper Money

 

The Role of TriFidus:

Tasked with creating a comprehensive financial model, our role was to:

  • Build a model to present to the PRA for banking authorisation.

  • Addressing the unique challenge of limited historical data due to the early stage nature of the business.

  • Integrating an additional business acquired during the project which required new products to be built into the model. In total, the model represented the financial statements of five entities.

Project 

Overview:

The project had many different dimensions and involved the transition of funding sources from a capital markets model to one funded by customer deposits. The work occurred whilst the acquisition of a second business was in progress which meant additional complexity as new products were added to the model.


The requirements:

Ivan Frampton, the lead consultant at TriFidus, led the modelling of five mortgage products (Owner Occupied, Buy-to-Let, 2nd charge, bridging and commercial real estate). Each contained between three to five subproducts.


How TriFidus supported this project:

  • Our modelling allowed the large portfolio of products to be stress tested within a single, standalone Excel file.

  • We took a leadership position on the project co-ordinating a number of subject matter experts to ensure the correct regulatory calculations were scoped and tested in the model.

  • We worked with Pepper Money’s experts to ensure auditors signed off on the final calculations.

  • We were part of the team that scoped the stress testing regime for ICAAP and ILAAP and designed the appropriate stress tests for capital and liquidity. Once agreed, we were able to run tests within the model and design actions for different scenarios. These were summarised in presentations for the Executive board for final decisions.

The Results:

The financial model was pivotal in Pepper Money's presentation to the PRA, demonstrating their viability as a bank. The model and the process were highly commended for our thoroughness and strategic insight.

“TriFidus were part of the team responsible for ICAAP and ILAAP analysis. They worked with the Treasury and Risk teams to understand the appropriate stress tests we had to complete. They actively participated in those discussions, were able to hear the nature of the stresses that we wanted, and then turn them into modelled output. This then enabled our Exco to review and approve the final business case.”

We were delighted to have the opportunity to work with Pepper Money on this exciting project. Working alongside an experienced team was a rewarding experience for us as we were able to share our experience in building intelligent financial models.

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