Metro Bank is beefing up its senior management and preparing to sell a £500 million portfolio of mortgages to restore confidence among investors.
The struggling lender is set to sell the portfolio, which is thought to be mainly made up of loans to landlords, to Cerberus Capital Management, the private equity firm.
Shares in Metro bounced 27¾p to close at 500p on the news, which comes two days before it reports its results for the first half of the year. Sky News first reported the talks with Cerberus.
Metro announced two appointments to its executive committee yesterday. Daniel Frumkin, a Briton has who worked at Royal Bank of Scotland, Northern Rock and, most recently, the Bermuda-based Butterfield Bank, will join as chief transformation officer with a brief of improving efficiency and customers’ experience. Cheryl Newton, a Canadian technology specialist who has worked for banks including JP Morgan and Lloyds, will become chief information officer. Both are 55.
The bank is searching for one or more new directors to join its board. Critics are pressing for Metro to replace Vernon Hill as its chairman.
Metro was set up by Mr Hill, 73, in 2010, winning the first new banking licence in the UK in more than 100 years. It now has 67 branches, 1.7 million customers and a £22 billion balance sheet, built on its customer-friendly model of seven-day opening and high service levels. At its peak in spring last year, Metro was worth £3.5 billion.
However, it has been struggling with scepticism about its business model and criticism of its corporate governance. It shocked the stock market in January by revealing that it had wrongly assessed loans to companies and landlords, requiring it to increase its risk-weighted assets by £900 million and to hold more capital than it had expected.
Metro has lost four fifths of its value from its £3.5 billion peak in March last year. The London-based lender raised £375 million in May at £5 a share, but last week dipped below that level.
The bank yesterday confirmed that “discussions regarding the potential sale of a loan portfolio are taking place”. Metro did not give details of what loans it is in talks to sell. John Cronin, an analyst at Goodbody, the broker, said they were likely to be among those whose riskiness was underestimated.
Metro appears to be unwinding part of two earlier deals where it bought assets from Cerberus for £1.1 billion.
Selling all the miscategorised loans at their face value of about £1.6 billion would increase its core equity tier 1 capital, a key measure of financial strength, by 2.4 per cent, Mr Cronin said.
Analysts at Exane BNP Paribas said Metro could also free up capital by securitising about £2 billion of its loan book, but both moves would reduce revenues and profitability.
