City gives Metro Bank a break as loan sale looms
METRO Bank’s shares recovered some lost ground today when it confirmed talks to offload a £500 million-plus book of mortgage loans.
The new-style, dog-friendly bank has had a rough year, ever since it disclosed an accounting error in January that left a hole in its balance sheet.
Management, including chief executive Craig Donaldson and chairman Vernon Hill, remain under pressure. The stock is down 70% this year.
Today it rose 2% to 483p as it told the stock market that weekend reports about the “potential disposal of a loan portfolio” are true. It said in a statement: “The company regularly assesses various opportunities in the market and accordingly confirms that discussions regarding the potential sale of a loan portfolio are taking place.”
The deal would see it sell a batch of mortgage loans first acquired from Cerberus Capital Management back to the US hedge fund.
Metro has bought more than £1 billion of loans from Cerberus, including a £520 million buy-to-let portfolio in February 2018.
Cerberus, named after the threeheaded dog that in Greek mythology guards the gates of hell, is a controversial operator that specialises in “distressed” assets. It bought old Northern Rock and Bradford & Bingley loans off the Government after the financial crisis but has been accused of creating “mortgage prisoners” by locking those borrowers into old deals.
John Cronin, financial analyst at broker Goodbody, said selling loan assets made sense but was cautious about the impact on future profitability.
“Balance-sheet shrinkage is never ideal in the case of a company that has attracted an investor base owing to its high growth prospects. However, capital sufficiency trumps growth and profitability considerations at the current time,” he said.
Hill and Donaldson survived a shareholder revolt this year. Hill, who once said he would die as chairman of Metro Bank, has been asked by investors to say when he intends to step down.