OneSavings Bank (OSB) posted an increase in pre-tax profits of 25 per cent to £260.4m in 2020, but within its annual accounts is a minor, yet interesting, story of alleged fraud concerning a now insolvent piano leasing business.

OSB, a UK SME specialist lender active in the asset finance space, recently reported a £20m hole in its 2020 balance sheet, which it attributed to “a funding line secured against lease receivables and the underlying hard assets.”

In reporting its annual accounts for the year ending 31 December 2020, Andy Golding, chief executive of OSB Group, says the impairment provision involved a “potentially fraudulent activity by a third party on a funding line of £28.6m provided by the Group … We believe that this is an isolated incident.”

Duet Capital (Holdings) Ltd was founded in 2009 in Ashford in Kent. The company, which operated as a lessor of high-value pianos and other musical instruments to schools and music colleges, was identified by on 30 March as a company of interest.  The company leased pianos to institutions such as Harrow and the Royal Conservatoire of Scotland, according to Bloomberg. The company has no links to a London-based global investment holding company of the same name.

The circumstances of the suspected fraud and the identity of the alleged perpetrators are currently under investigation and have not been established.

A review of Duet Capital’s filings shows that on 23 March, OSB exercised its rights as a secured creditor of Duet Capital and forced its directors to relinquish control over the company’s assets when OSB appointed insolvency practitioners Colin Hardman, Nick Myers and Henry Shinners of Smith & Williamson LLP as joint administrators.

After calling in the administrators, the piano leasing business continued to trade following a £205k advance from OSB with five company employees, who were retained to assist with operations, and Duet Capital’s former group chief operating officer who was “engaged as a consultant” … all “with a view to achieving an ongoing concern sale,” the administrators say.

So, having just published its yearly financial report, what do we know about OSB’s overall performance, in what context should we put the £20m write off and what does the administrator’s report say about Duet Capital’s UK piano leasing business?

OSB’s Covid year

On 27 April, CEO Golding told investors: “We entered 2020 in a position of strength, with an attractive pipeline, growing opportunities and robust capital position.

“Lockdowns inevitably impacted our business and we reacted by tightening our risk appetite to protect margin and credit quality over growth … We continue to control volumes in our more cyclical product lines, reflecting the economic outlook and our prudent approach to risk management.”

OSB: a compact history 

OSB was formed out of the Kent Reliance Building Society by US private equity house JC Flowers in 2010 and joined a wave of challenger banks in the aftermath of the financial crisis encouraged by the UK government to take on the dominance of the UK’s top banks. JC Flowers exited OSB in 2018. OneSavings merged with Charter Court Financial Services in 2019.

John Cronin, financials analyst with Goodbody, says that looking at its most recent financial statement, OSB has performed well.

“Based on the available economic data and the Bank of England’s expectations for unemployment, if anything, OSB has over-provisioned – though that is not my assumption. Asset quality is expected to hold well, which is borne out in payment holidays, arrears, and securitisation data. OSB’s loan book is performing very well from an arrears perspective with payment holidays down substantially in the last six months,” says Cronin.

Like many of its peers, OSB has, to date, weathered the downturn well. The UK banking sector has performed well at this stage of the pandemic-induced economic slowdown, says Cronin, but the big test for the sector will come in September when the government’s furlough scheme ends.

Cronin says that for investors the £20m write-down represents just 1% of OSB’s £2.14bn market capitalisation.

“Investor focus will be on recurring earnings and exceptional costs, and gains are typically stripped out in standard valuation analyses, and the £20m write down is considered an exceptional cost,” he says.

Or, to put it another way, the hit to OSB’s CET1 capital position is 23bps. OSB reported a CET1 of 18.3% at end-2020, but it would have been 18.5% were it not for the £20m write down, so not hugely significant, says Cronin.

Lease contracts

Smith & Williamson says that before being appointed as administrators, “concerns were raised by management that substantial funds may have been misappropriated and diverted to one of the [Duet] company’s officers and certain of the company’s subsidiaries.”

Smith & Williamson added that during their pre-administration work for OSB: “It became apparent that a number of the company’s leases with educational institutions were not genuine.

“To date, 27 leases have been claimed to be fabricated. A further 10 customers have advised that although they do have lease agreements with Duet, the actual number of assets leased and associated rental payments are considerably lower than the company’s actual records indicated”, the administrators said in a filing dated 17 May 2021.

Also, before going into administration Duet Capital revalued its assets annually. “We have received information that book values may have been inflated beyond appropriate levels. The administrators have sought independent valuations of all company assets,” it says.

There is also an outstanding director’s loan for £3.9m owed by one of the company’s directors. Smith & Williamson say the directors of the company have been fulfilling their statutory duty of assisting the joint administrators with their work.

Call in the administrators

OSB, as a qualifying floating charge holder (QFCH) of Duet Capital, was able, with the consent of NatWest (another QFCH), to invoke its power to appoint an administrator.

“A qualifying floating charge is an out-of-court measure enshrined in statute under the Insolvency Act 1986 that allows the holder to appoint an administrator without the need for an order of the court,” says Paul Zalkin, managing director of Quantuma Advisory, and a licensed insolvency practitioner.

Once invoked, the objective of the administration, says Smith & Williamson, is to “achieve a better result for the company’s creditors as a whole than would be likely than if the company was wound up (without first being in administration).”

Subsidiaries and assets

In addition to its business and assets, Duet Capital has various subsidiaries that “were almost exclusively funded by the company”, three of which have been identified as having a value that “we expect will ultimately derive a return for the company’s creditors,” the administrators say.

These subsidiaries are:

  • Adriatic (which owns a yacht, for sale in Florida, US)
  • SkyTaste (which holds three development plots in Croatia)
  • Duet Piano Lease Inc (which operates a piano leasing business in the US).

Also, among the assets the company has are:

  • Customer leases in respect of premium musical instrument rentals, generating an annual revenue of approximately £840k. (Customers are primarily educational institutes such as conservatories, private schools and universities) .
  • Lease income related to the company’s consumer rent-to-own business.
  • Approximately 675 premium musical instruments, including 315 premium pianos (231 being grand pianos, the majority of which are Steinways or Yamahas).

InterBay Asset Finance  

OSB Group has a subsidiary, InterBay Asset Finance, that provides asset finance across a wide range of sectors. Gross finance leases were up 37% in 2020 to £65m (£47.7m in 2019). Separately to InterBay, OSB also operates a funding line business that funds non-bank lenders, including Duet.

However, accompanying news of a rise in its gross finance leases was a rise in expected credit losses (ECLs) of 766% (from £0.3m in 2019 to £2.6m in 2020).

In explaining the rise in ECLs across the Group, OSB said: “Impairment losses increased due primarily to the impact of adopting Covid-19 forward-looking assumptions in the Group’s IFRS 9 models and an impairment provision of £20m in relation to potential fraudulent activity by a third party on a secured funding line provided by the group.”

This rise is not unusual given the onset in Covid-related economic uncertainty. OSB peer, Paragon Bank Group – in its most recent financial report – reported an operating profit of £120m for the full year, 30 per cent below 2019, “largely driven by the IFRS 9 impairment charge which rose by over 500 per cent year-on-year to £48.3m and was taken in anticipation of the expected impacts of Covid-19.”


In 2009, the International Accounting Standards Board published IFRS 9 which ushered in changes to how bad debt provision is calculated on a company’s balance sheet for trade receivables, contract assets and lease receivables.
Under IFRS 9, companies are required to account for expected losses on any assets they hold.

The administrators also identified Close Brothers Business Finance as another of Duet Capital’s secured creditors, which is owed £3.2m, advanced to the company to cover the purchase of pianos. NatWest, another secured creditor, has a fixed charge over the company’s property in Ashford, which is subject to a commercial mortgage with an outstanding balance of £74k.

OSB finance lease business and impairments  
  • OSB Group saw its gross finance lease business increase to £65.5m in 2020, against £47.7m in 2019, a 37 per cent increase.
  • The Group posted £2.6m of expected credit losses on finance leases in 2020, against £0.3m in 2019, a 766 per cent increase.
  • Full-year impairment losses for the Group totalled £71m against £15.6m for 2019, a 355 per cent increase.

Recouping losses

What likelihood do the creditors have of recouping their losses? Both OSB and Close are likely to suffer a shortfall on their loans and monies owed, the administrators said, but NatWest will be repaid in full.

A spokesman for OSB says a police investigation is underway and that an internal investigation has determined that OSB Group had followed its lending procedures. The company added that it would next update investors in August as part of its 2021 interim results.

Smith & Williamson LLP confirmed that the process of selling the company’s business and assets has commenced. It added that the administrators are required to provide a progress report to creditors within one month of the end of the first six months of the administration or earlier if the administration has been finalised.

The FCA declined an invitation to comment on this matter.

OneSavings’ share price falls as lender declines to issue Covid-19 outlook for 2020