Metro Bank

[Swanmore22]

Hi Paul,

Apologies for delay
I can"t find the source of the profit forecast..was either an investor presentation or a broker f/cast.

Last coupon payment at 5.5% cleared on 28th June
Next payment in 6 months time at new rate, 9.14 %
Income to date has offset capital losses .
Am still a bit twitchy on these ..time will tell

Swan

[hiriskpaul]

Hi Paul,

Apologies for delay
I can"t find the source of the profit forecast..was either an investor presentation or a broker f/cast.

Last coupon payment at 5.5% cleared on 28th June
Next payment in 6 months time at new rate, 9.14 %
Income to date has offset capital losses .
Am still a bit twitchy on these ..time will tell

Swan

Interim half year results should be out at the end of July and that will provide earnings information. Over the last year they have been exceeding expectations - let's hope that continues!

[GoSeigen]

[Deletion]

If you are genuinely just trying to be helpful it's good form here to make clear your interest in the linked site, because this sort of post is liable to be flagged as SPAM/advertising and you risk being banned.

Advertising is the prerogative of the owners so if you're looking for traffic it's best to either approach them or just let users find their own way to your site.

GS

[formoverfunction]

I should say I have never received any spam from the site, but I understand if you attend the Zoom event they will reach out and contact you.

At the moment only a small number of people appear to attend the Zoom events, in the low 10's would be my guess, so it's not surprising that they appear to want feedback, it must take a lot of work to get such detailed research for a very small number of people and get external companies to present.

[GoSeigen]

I should say I have never received any spam from the site, but I understand if you attend the Zoom event they will reach out and contact you.

To be clear I was referring to SPAM on these boards.


As I said to @thegr8Destructo, if one is linking to one's own site simply to help or take part in the discussion then it's good form to declare the interest. Else how will others be able distinguish the post from advertising or SPAM?


The rules state:

"Posting of links to 3rd party sites is acceptable where it is entirely relevant to the discussion. However, any links promoting a 3rd party site are not allowed"

and

"Users are prohibited from posting SPAM posts"

GS

[thegr8Destructo]

Crumbs. Yes I run the site. As per the rules I posted it because there are relevant posts on Metrobank on the site and it is a good resource. I will be more careful in my posting in future, but declaring your interest should not be necessary if there is genuine benefit to sharing which there is. Bit disappointed to be honest.

[formoverfunction]

Crumbs. Yes I run the site. As per the rules I posted it because there are relevant posts on Metrobank on the site and it is a good resource. I will be more careful in my posting in future, but declaring your interest should not be necessary if there is genuine benefit to sharing which there is. Bit disappointed to be honest.

Your site is a great resource, and the Zoom sessions are brilliant.

I am not a great fan of Zoom, horrible implementation on Mac as identified by Patrick Wardle, which may now have been resolved, and it's a nightmare for hardend browsers,so any chance you could host downloading of the presentations as it's not always possible to watch if you don't use Edge or Google Chrome? It's still great just listening in, but being able to read along would also be useful.

The recent Atalian presentation was very useful. Thank you.

[hiriskpaul]

An unexpected piece of good news today concerning MREL. Confirmation of Tier 2 amortisation though, so they still need to tackle the overall capital requirements.

https://www.londonstockexchange.com/new ... e/16060449

[hiriskpaul]

Results out today. At first glance they look like satisfactory, steady as she goes progress. £16m profit before tax, so about £30m to be expected for the year, unless they can squeeze costs and/or increase NIM further. There is little scope to grow assets until they rebuild capital.

https://www.londonstockexchange.com/new ... 3/16064183

[hooyas]

Why is the Metro Bank 5.5% bond price going down. It's currently at 62.?

[88V8]

Why is the Metro Bank 5.5% bond price going down. It's currently at 62.?

If it is, and it's hard to tell without getting a live price, it might be because the BoE are now thinking to keep rates high into 2025 and even with the reset coupon of 9.14% there is perceived to be a risk premium.

V8

[hooyas]

I believe if I plan to keep it till maturity date, it would be worth getting it at this price of £60 as redemption would be at issue price which Would be £100. Metro bank should be reliable I guess.
Please can someone advise if my thinking is correct.

[Alaric]

. Metro bank should be reliable I guess.

If you Google for Metro Bank, you find various stories about its problems.
https://www.cityam.com/metro-bank-loss- ... behind-it/

That mostly affects equity shareholders, but bondholders may find a partial default imposed on them. In other words the bond price is reduced because of a plausible worry that the interest coupons and maturity values as promised may not be delivered.

[Swanmore22]

An unexpected piece of good news today concerning MREL. Confirmation of Tier 2 amortisation though, so they still need to tackle the overall capital requirements.

https://www.londonstockexchange.com/new ... e/16060449

Can"t refi so extension to 2028.
Underlying story of turnaround , back to profits etc needs to gather more momentum .
To increase customer deposits/new accounts can Metro rely upon "We are the only branch in town" mantra to bring home the bacon ?
Am ok holding for now , i do not have a large position but will not be adding ,

Swan

[Eddiedcricket123]

I wrote an analysis on European High Yield Online. Here is my summary to get under the bonnet read the short analysis. I won't link because that's against Lemonfool code...

UK focused loan book, with a high concentration towards mortgage lending, both owner occupied and Buy to Let. Improving lending standards to SMEs and lower incidence of NPLs and LICs.
Capital Adequacy has been under pressure over the past few years as Metro has endured continuous losses. The PRA is closely monitoring the situation.
Whilst increased rates have helped Metro Bank’s NiM, they could pose a serious risk to the loan book. As a result expect ECLs to rise, and NPLs.
The service-oriented core deposit franchise experienced ongoing growth in customer numbers during Q1’23. This resulted in the opening of over 54k personal current accounts and 12k business current accounts. Current account openings in Q1’23 increased 18% YoY, and looking at a more critical measure were in effect 20% higher than the pre-COVID levels in Q1 2020.

The bank continues to purposefully operate the allotment of risk-weighted assets (“RWA”).

The strategic lending continues to emphasis the optimisation of the risk-adjusted return on regulatory capital (“ROCE”) to enhance margins and underlying profitability. Retail mortgage lending slightly increased to £7.7Bln, while there were managed reductions in both Consumer lending to £1.4Bln and Commercial lending to £3.9Bln.

The bank’s profitability and approach to asset allocation have supported capital stability in 2023, after struggling between 2018-2022. The bank continues to operate within its MREL capital buffers.

Metro Bank operates within tight Capital Buffers, Metro’s CET1 and total capital ratios were 9.9% and 13.0% in Q1’23. Down very marginally on FYE’22, 10.3% and 13.4%. Little headroom above the 8.2% and 11.9% minimum requirements, including the capital conservation buffer and the 1% UK countercyclical capital buffer.

In July, this buffer will rise to 2%, constricting Metro Bank when meeting its minimum requirements plus buffers as RWA growth will possibly tie up capital. Though the PRA is looking to adjust MREL requirements to calibrate for the smaller scale of Metro Bank.

Currently Metro Bank operates a standard UK loan book with generally sufficient asset quality. Impaired loans ratio (“NPL”) has improved to 2.7% over 2022, down from 3.7% at FYE’21, driven mainly by repayments, successful payback from non-performing state-guaranteed Bounce Back loans, essentially the government back stopped this. There were also some write-offs of commercial lending exposures. Most loans are to retail customers, mainly in the form of mortgage lending, and have held up well over the most recent period, although the outlook is gloomy and asset quality is expected to deteriorate as the UK economy faces headwinds in 2023. Metro still has a share of higher-risk loans, expect loan impairment charges (“LIC”) to rise.

[hiriskpaul]

Good description of where we are, except there have now been 3 profitable quarters.

[88V8]

The PRA has rejected Metro's application to increase its UK mortgage book.
The FT reports that
Metro Bank said “There is no impact on our mortgage business or our mortgage customers. We will continue to run the bank on a business-as-usual basis and service the needs of our existing and future customers."

In its statement to the markets, Metro Bank said it "continues to engage with the PRA on its application, [but] there is no certainty that approval will be obtained, the timing of any approval or the level of any reduction in risk-weighted assets and consequential reduction in regulatory capital requirements that might be achieved".

Restrictions on growing the mortgage book will not help with the task of servicing Metro's debt.
The ords have dived 13% today.

V8

[BondSquared]

The PRA has rejected Metro's application to increase its UK mortgage book.
The FT reports that
Metro Bank said “There is no impact on our mortgage business or our mortgage customers. We will continue to run the bank on a business-as-usual basis and service the needs of our existing and future customers."

In its statement to the markets, Metro Bank said it "continues to engage with the PRA on its application, [but] there is no certainty that approval will be obtained, the timing of any approval or the level of any reduction in risk-weighted assets and consequential reduction in regulatory capital requirements that might be achieved".

Restrictions on growing the mortgage book will not help with the task of servicing Metro's debt.
The ords have dived 13% today.

V8

I'm not at all convinced by Metro Bank's management. The number 1, 2 and 3 problem of Metro Bank is their liabilities structure, both debt and capital. They're facing a cliff on the refinancing. What's the management's response to that? Grow the balance sheet (via the mortgage book). So that's their version of "when in trouble, double".

I also note that they're holding over £5bn of bonds at cost, i.e. not marked-to-market/fair valued, gilts, ABS, RMBS, supras and covered bonds, pretty much all of which were bought in the low-interest rate era. They do mention hedging interest rate risk, but their bond holdings held at fair value are tiny compared to that (£0.5bn). I would want to see what - if any - hedging strategy there was for those £5bn of bonds - very relevant question in a year where US banks, including a certain bank in a valley on the west coast of the USA ... . A bit more disclosure than just mentioning the natural offsets vs their assets (mortgage book, I assume) would do well.

[BondSquared]

The PRA has rejected Metro's application to increase its UK mortgage book.
The FT reports that
Metro Bank said “There is no impact on our mortgage business or our mortgage customers. We will continue to run the bank on a business-as-usual basis and service the needs of our existing and future customers."

In its statement to the markets, Metro Bank said it "continues to engage with the PRA on its application, [but] there is no certainty that approval will be obtained, the timing of any approval or the level of any reduction in risk-weighted assets and consequential reduction in regulatory capital requirements that might be achieved".

Restrictions on growing the mortgage book will not help with the task of servicing Metro's debt.
The ords have dived 13% today.

V8

I'm not at all convinced by Metro Bank's management. The number 1, 2 and 3 problem of Metro Bank is their liabilities structure, both debt and capital. They're facing a cliff on the refinancing. What's the management's response to that? Grow the balance sheet (via the mortgage book). So that's their version of "when in trouble, double".

I also note that they're holding over £5bn of bonds at cost, i.e. not marked-to-market/fair valued, gilts, ABS, RMBS, supras and covered bonds, pretty much all of which were bought in the low-interest rate era. They do mention hedging interest rate risk, but their bond holdings held at fair value are tiny compared to that (£0.5bn). I would want to see what - if any - hedging strategy there was for those £5bn of bonds - very relevant question in a year where US banks, including a certain bank in a valley on the west coast of the USA ... . A bit more disclosure than just mentioning the natural offsets vs their assets (mortgage book, I assume) would do well.

actually - ignore, found https://www.metrobankonline.co.uk/globa ... e-2022.pdf

+2% parallel rise in rates across the curve leads to £39mm hit to the economic value of equity. Hm.

[Swanmore22]

Not good news , even though Frumkin appears unruffled and draws upon a game of tennis to explain the "battle" with the regulator, see below.

Options for Metro
They are effectively closed from traditional debt market, but private equity has cash to lend ?
Rights issue ?..this must have been explored and presume no appetite.
Sell off part or all of the branch network.
Sell off parts of the mge book

Look for a white knight investor...
White knight or take over would be favoured outcome

Swan

A spokesperson for Metro Bank told FTAdviser: “There is no impact on our mortgage business or our mortgage customers. We will continue to run the bank on a business-as-usual basis and service the needs of our existing and future customers."

In its statement to the markets, Metro Bank said it "continues to engage with the PRA on its application, [but] there is no certainty that approval will be obtained, the timing of any approval or the level of any reduction in risk-weighted assets and consequential reduction in regulatory capital requirements that might be achieved".

In 2022, Metro Bank outlined on its H1 results call that it anticipated growth in its residential mortgage market once its AIRB application was successful.

At the time on its results call, Daniel Frumkin, Metro Bank chief executive, said: "I know that people get concerned about us operating within buffers. I want to be clear we are comfortable operating within buffers.

"We believe the regulator understands our position and is comfortable with us operating within buffers, and we will continue to operate within buffers until we can get access to debt capital markets.

"We are making progress on our AIRB application, as I use the analogy at year end and I'll use again, it's like playing tennis. They hit the ball back to us, we hit the ball back to them.

"We do a bit of work, they do a bit of work, and eventually we will get to the resolution we hope to achieve. But the reality is, I don't know if it's a five set tennis match or a four set tennis match or a three set tennis match."

Offset from the PRA
He also told analysts and journalists at the time: "I do not yet know when we will get to it. It is not within my gift to be able to pick a timeline. All we can do is play the game as well as we can.

"And we put a ton of effort and a ton of energy into preparing high class materials and doing high quality modelling.

"That puts us in a good position in the conversations with the regulator, and it'll come when it comes. Our current requirements have been reduced."