Metro Bank Considers Selling Mortgage Book to Bolster Balance Sheet
Metro Bank, one of the UK’s challenger banks that emerged after the financial crisis, is exploring the possibility of selling a third of its mortgage book in an effort to strengthen its balance sheet. The move comes after the lender announced plans to raise up to £600 million from investors, causing its shares to plummet by nearly 30%.
In addition to seeking equity funding of £250 million and debt funding of £350 million, Metro Bank is considering selling approximately £2.3 billion of its £7.5 billion mortgage book. The bank has reportedly approached larger peers, including Lloyds Banking Group, NatWest, and HSBC, to gauge their interest in acquiring the book. The potential sale is seen as a means to raise funds and reduce regulatory capital requirements.
“They are attractive prime assets, so it will just come down to price,” stated one person familiar with the matter. These assets may be of interest to other banks looking to expand their portfolios.
Meanwhile, government officials are closely monitoring the situation at Metro Bank, with the Treasury receiving regular updates from the Bank of England. However, there have been no direct discussions between Treasury officials and Metro Bank.
Metro Bank’s chair, Robert Sharpe, recently met with officials from the Bank of England’s Prudential Regulation Authority and Financial Conduct Authority. This meeting follows a series of contacts between the regulators and the bank over the past month, during which Metro Bank’s share price experienced a significant decline.
Metro Bank disclosed three weeks ago that the PRA had delayed approval of a plan to allow the bank to run its mortgage business at a lower cost. The reasons for the delay and the details of Sharpe’s meeting with the regulators remain undisclosed.
The bank has reassured investors, stating that it is evaluating various options, including a combination of equity and debt issuance, refinancing, and asset sales. However, an equity raise could potentially dilute shareholder value and may pose messaging challenges to the wider public.
Metro Bank’s market value reached a low of £64 million on Thursday, with its share price dropping to 36.10p, compared to an all-time high of approximately £3.5 billion five years ago. Fitch, the credit rating agency, placed Metro Bank on negative watch, highlighting increasing risks to its business model, capital position, and funding.
Despite the uncertain circumstances, Metro Bank remains optimistic about future growth, citing its underlying profits for the past three quarters. The bank currently has 76 branches, serves 2.8 million customers, and possesses assets worth £21.7 billion, as per its most recent financial accounts.
Metro Bank faced a misreporting scandal in 2019, resulting in the departure of its chair and chief executive. The bank was fined by the FCA, and the former chief executive and finance boss were censured. Morningstar, a rating agency, believes that the bank’s difficulties are unlikely to have a broader impact on the UK financial sector due to its relatively small size and the specific issues it has encountered.
In the coming weeks, Metro Bank will continue to evaluate its options and engage with potential investors and buyers interested in its mortgage book. The outcome of these discussions will likely shape the bank’s future path and determine its ability to regain stability in the market.