Metro Bank will soon sell a significant portion of its mortgage portfolio to Barclays, after shareholders approved a £925m bailout deal.
The troubled lender has been in discussions with potential buyers to offload about £3bn of homeowner loans, as part of the funding package announced last October.
Sky News reported that Lloyds, Natwest, and HSBC were all mentioned as potential buyers. However, last night, it was revealed that Barclays has entered into exclusive negotiations with Metro to acquire the book.
Metro will benefit from the deal which should be finalized before the end the year. It will also reduce the amount it has to set aside for safety buffers.
Metro Bank’s impressive portfolio of residential mortgages amounts to a substantial portion of their nearly £8 billion book. This is mainly composed by homeowners in London and south-east.
Once the transaction is complete by the end the year, all Metro mortgages will be transferred to a new portfolio owner.
On Monday, shareholders in London gave their approval to a highly intricate bailout deal worth an impressive £925 million.
Metro announced that shareholders “overwhelmingly” supported the new capital package.
Metro Bank said that the “confidence and belief in the future of Metro Bank” was a testament to the customers’ faith.
Colombian billionaire Jaime Gilinski is Metro’s biggest shareholder. He cemented his ownership by pledging over £100m via his investment vehicle Spaldy Investments.
Gilinski Fund now controls 53pc Metro shares. Dorita Gilinski is his daughter and she was at yesterday’s meeting. She sits on Metro’s board.
The remainder of funding is provided by other shareholders, and a debt facility worth £600m.
Dan Frumkin, chief executive officer of Metro Bank, stated that the sale of the mortgage books would allow the bank to expand into other lending areas.
He said: “The loans we have on our bank balance sheet are of high quality, but they aren’t what we need on our balance sheets as we move on. They’d be better placed on the balance sheet of another institution.”
Metro’s book of mortgages is mainly made up by owner-occupied loans. About one third of the loans are Buy to Let mortgages.
This plan is similar to a deal that Metro made in 2020, when it sold mortgages worth about £3bn to Natwest.
The deal, internally known as Project Eden saw Metro mortgage holders move to Natwest after the deal was completed.
The bank’s shares were trading around 40p apiece on Monday. This is down by around two thirds since the beginning of the year.
Metro, once a darling in the challenger banking movement under former chairman Vernon Hill’s leadership, was ruined by a mistaken accounting that caused depositors to flee the bank in 2019.
Metro employs 4,000 people in 76 branches across the UK.
Since the Prudential Regulatory Authority’s (PRA) delay in allowing them to use their own internal models for calculating risk, the bank has been examining its options.
The internal models of larger banks can often be used, resulting in lower fees for the loans they hold.
Metro had to use more burdensome PRA models which added to its balance sheet.
Metro and Barclays have declined to comment.