Metro Bank has agreed to sell a £2.5 bn (€2.9 bn) portfolio of prime residential mortgages to NatWest Group for up to £2.4 bn (€2.8 bn) in cash.
This deal is expected to strengthen Metro Bank's financial position by reducing its risk and improving its capital ratios.
Specifically, the sale will decrease risk-weighted assets by approximately £824 mln (€977 mln), boosting the bank's total capital plus MREL ratio by 1.14 percentage points to 23.1% and its CET ratio by 0.05 percentage points.
The sale is in line with Metro Bank's strategy to improve its financial performance and reduce risk. By freeing up capital, Metro Bank can invest in more profitable areas like commercial and corporate lending, as well as loans to small businesses and specialized borrowers.
The €2.9 bn mortgage portfolio carries an average interest rate of approximately 3.79%. Most of these loans are repayment mortgages with an average of 2.3 years left on their fixed interest period. The portfolio's geographic spread matches Metro Bank's overall mortgage book, and on average, borrowers owe 62% of the property's value. Due to lower interest rates when these loans were originated, Metro Bank is selling the portfolio at a 4.2% discount, resulting in an estimated loss of £105 mln (€124 mln).
Commenting on the disposal, Daniel Frumkin, Metro Bank’s CEO, said: ‘The sale of part of our residential mortgage portfolio is earnings, NIM and capital ratio accretive. The sale is in-line with Metro Bank’s strategy to reposition its balance sheet for higher risk adjusted returns on regulatory capital. The additional lending capacity provided by this sale will enable us to continue our shift into high yielding assets in niche and underserved markets and become a specialist lender of choice.’
Commenting on the transaction, Paul Thwaite, CEO of NatWest Group added: ‘This transaction is a further opportunity to accelerate the growth of our Retail mortgage book within our existing risk appetite, with attractive returns. It is in line with our strategic priorities and builds on our recent acquisition from Sainsbury's Bank. We are focussed on a smooth transition and have a strong track record of successful integration with Metro Bank, following our previous acquisition of mortgages in 2020.’
NatWest Group, through its subsidiary National Westminster Bank, is purchasing the mortgage portfolio. The deal is subject to approval from the Competition & Markets Authority and is expected to finalize in the second half of 2024.
