Return to seller: Metro Bank plots £500m Cerberus loan deal
21 July 2019, 17:56 | Updated: 21 July 2019, 20:05
The embattled high street lender Metro Bank is this weekend applying the finishing touches to a £500m deal to offload a mortgage portfolio back to a major US hedge fund.
Sky News has learnt that Metro Bank is in talks about an agreement to sell the loans to Cerberus Capital Management, from which it has bought more than £1bn of assets in recent years.
A source close to Cerberus said the transaction could be announced as soon as Wednesday, when the British bank will report a closely watched set of half-year results.
If confirmed, the deal will provide a boost to Metro Bank's capital position following a torrid few months for the challenger bank.
Metro Bank raised £375m from the sale of new shares to investors last month amid deepening concerns about its financial position in the wake of an accounting error.
The fundraising, which allayed immediate fears about its ability to continue trading, has prompted renewed speculation about the tenure of Vernon Hill, its founder and chairman.
Metro Bank acquired a £520m buy-to-let portfolio from Cerberus in February 2018 as a way of bolstering its loan-book, having also undertaken a similar transaction the previous year.
The price at which it is disposing of the mortgages back to the hedge fund, or which of the earlier deals is being reversed, was unclear on Sunday.
The assets being sold by Metro Bank are understood to hold no strategic merit for the company, consisting entirely of loans to customers who do not hold current accounts with the bank.
Craig Donaldson, Metro Bank's chief executive, has flagged publicly the possibility of selling or securitising part of its loan-book, meaning that a transaction is unlikely to come as a surprise to investors.
The accounting error which emerged this year sent Metro Bank's shares plummeting, partly because investors perceived it to have been a particularly egregious oversight on the part of the company's finance team.
The impact of the mistake was illustrated by quarterly results showing that profits had halved and that it had suffered an exodus of corporate customers.
Metro Bank has about 1.7 million customers and describes itself as "the revolution in British banking", deploying a model founded on friendly customer service.
Its recent travails, however, have dented its hopes of growing its deposit base by 20% this year.
The bank, which has more than 60 branches and became the first new high street lender for more than a century when it opened its doors in 2010, is now worth £815m - just over 85% less than it was a year ago.
Its recent crisis has stoked suggestions that either Mr Hill or Mr Donaldson would be forced to depart in the near term.
The bank's chairman has courted unwanted scrutiny over commercial arrangements between Metro Bank and his wife, which has prompted them to be unwound amid City complaints about corporate governance at the company.
A number of institutional shareholders have expressed a belief that an independent chairman is now required.
At its AGM in May, just over one in 10 investors opposed Mr Hill's re-election, with a larger revolt against two non-executive directors.
A Metro Bank spokeswoman declined to comment on Sunday, while Cerberus could not be reached for comment.
(c) Sky News 2019: Return to seller: Metro Bank plots £500m Cerberus loan deal