Firm rental of $ 200,000 of pianos victims of fraud behind the loss of OSB panels

(Bloomberg) – A potential $ 40 million fraud that threatens to wipe out some of OSB Group Plc’s profits relates to a client with a niche line of business: piano rental.

The UK lender has filed for administration of Duet Capital (Holdings) Ltd., a form of UK bankruptcy, and contacted the Financial Conduct Authority about the alleged fraud, according to a company file and people familiar with the matter. The company rents pianos from some of the UK’s most exclusive boarding schools and has recently expanded into Croatian real estate investing, according to company records.

OSB shares fell after the bank warned earlier this month that potential wrongdoing related to an unidentified third party could result in a credit loss of up to £ 29million, which equates to around 12 % of its estimated profit for 2020. The exact nature of the alleged fraud and the identity of the alleged perpetrators is unclear.

A spokeswoman for the OSB in Chatham, Kent, declined to comment. An FCA spokeswoman also did not comment. Duet did not respond to multiple requests for comment.

OSB Group is one of the so-called “challenger” banks, which were created to confront UK lenders following the financial crisis. While regulators have praised the increased competition, they have also faced problems. In 2019, Metro Bank Plc was found to have misclassified the risk weights for a large number of its loans. The Bank of England has warned that fast-growing lenders may underestimate the risks to their business models in a downturn.

The bank, headed by Managing Director Andy Golding, specializes in commercial mortgages and business loans. The BSF said on March 17 that it had “very recently” become aware of the alleged fraud, which relates to a line of financing secured against “lease receivables and the underlying durable assets”. The bank postponed the release of its annual results to April 8 and appointed the accounting firm Smith & Williamson LLP as a director of Duet.

“Our primary goal as joint directors is to seek the best possible outcome for the creditors of the company, including employees at its offices in Ashford, Kent,” Smith & Williamson said in a statement. “The company will continue to trade as we reflect on how best to achieve this goal. We are considering all options, including selling the business.

OSB began loaning to Duet in 2015, according to the documents filed. Some of the leasing arrangements were supported by loans from Close Brothers Group Plc, a London-based investment bank. Andy Donald, an external spokesperson for Close Brothers, declined to comment.

The duo is growing

Duet has rented pianos and other instruments from schools including Harrow, which counts Winston Churchill among its alumni, while the Royal Conservatory of Scotland is also a client, according to company documents. The company, whose pianos are worth up to $ 227,100 each according to its website, has also worked with piano maker Steinway & Sons in the United States and discussed with advisers an initial public offering on the Alternative Investment. London Market, according to accounts. It has no connection with a London-based investment firm of the same name.

JC Flowers & Co., the finance company founded by Wall Street magnate J. Christopher Flowers, established OSB in 2011 after rescuing the former Kent Reliance Building Society. The company joined a wave of new UK lenders that emerged after the financial crisis to prey on the country’s major banks.

Analysts said OSB was likely to overcome the alleged fraud, but also warned it could highlight broader concerns.

“The direct impact appears relatively small,” analysts at Barclays Plc said, although “this may raise a number of indirect questions” related to the bank’s risk management.

© 2021 Bloomberg LP

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