Struggling lender Metro Bank is readying a £500 million deal to offload a mortgage portfolio back to US hedge fund Cerberus Capital Management in its latest attempt to strengthen its finances after an accounting error hammered its shares. The major loan book error in January left a hole in Metro’s balance sheet and wiped more than £1.5 billion of its market value.
Metro Bank responded in a stock market announcement. Shares rose 4% in morning trading.
It said: "The company regularly assesses various opportunities in the market and accordingly confirms that discussions regarding the potential sale of a loan portfolio are taking place.
"There can be no certainty at this stage that an agreement will be reached. A further announcement will be made if and when appropriate."
If confirmed, the sale would provide a boost to Metro Bank's capital position following a torrid few months for the challenger bank. While Metro, led by founder and chairman Vernon Hill, managed to raise £375 million in an over-subscribed share sale in May, the stock remains down 72% since the start of the year.
Financial analyst at broker Goodbody, John Cronin said selling loan assets made sense but was cautious about the impact on future profitability. “Balance sheet shrinkage is never ideal in the case of a company that has attracted an investor base owing to its high growth prospects. However, capital sufficiency trumps growth and profitability considerations at the current time,” he said.