Metro Bank to sell residential mortgages portfolio to NatWest for $3 billion, ET RealEstate

LONDON: NatWest has bought a 2.4 billion pound ($3.09 billion) mortgage book from Metro Bank and upgraded its performance outlook for the year, boosting its shares even though the British bank’s first-half profit fell 16%.

The transaction represents the latest in a slew of consolidation deals this year in Britain‘s crowded banking market, as incumbents snap up assets from smaller rivals that have failed to build scale in a fiercely competitive environment.

NatWest also bought the banking business of UK retailer Sainsbury‘s in June, while Nationwide Building Society is buying Virgin Money and Coventry Building Society is taking over The Co-operative Bank.

For Metro Bank, the mortgage sale represents a much needed injection of cash, albeit it is selling at a 4% discount on book value for a resulting loss of around 105 million pounds.

NatWest shares jumped 6% on Friday to their highest level since February 2015. Metro Bank climbed 2.3%.

Analysts were positive on the Metro Bank deal from a NatWest perspective.

“The acquisition of 2.5 billion pounds worth of prime mortgages from Metro Bank suggests inorganic loan book growth is on the table,” said Matt Britzman, analyst at Hargreaves Lansdown.

“NatWest is poised to benefit from many of the sector’s positive trends,” Britzman said.

Optimism on economy

NatWest’s fall in first-half profit to 3 billion pounds, slightly less than expected by analysts, shows how British banks are grappling with intense mortgage market competition and savers shifting deposits to higher-paying products.

But the bank raised its 2024 forecast for return on tangible equity to above 14%, from the 12% expected previously in a sign of its confidence in its performance for the rest of the year.

Income for the year is expected to reach about 14 billion pounds, up from an earlier forecast of between 13 billion and 13.5 billion pounds.

The results followed a similar update from rival Lloyds Banking Group on Thursday, which reported a 14% fall in first-half profit but offered signs of optimism for the economic outlook in the second half.

“Our customers are beginning to feel more confident, with activity increasing and asset quality remaining strong, and we are well positioned to help unlock growth across the UK through our unrivalled regional network,” NatWest CEO Paul Thwaite said on Friday.

The British bank said this month that the government’s stake in it fell below 20%, moving the lender closer to full private ownership after its state bailout in the 2008 financial crisis.

Metro Bank, launched to challenge the dominance of the country’s big banks in the wake of the global financial crisis, struck a 925-million-pound rescue deal last year after suffering heavy deposit outflows.

Poor market conditions last year had forced Metro Bank to abandon the sale of the mortgage portfolio in December. It revived plans to sell it in recent months as it tries to refashion itself as a specialist lender focusing on niche and under-served markets.