Metro Bank draws up plans to sell £1bn of its loans

Misreporting scandal causes share price to plummet

 Metro Bank’s accounting error involved large numbers of commercial property and professional buy-to-let loans. Photograph: Reuters/ Toby Melville

Metro Bank’s accounting error involved large numbers of commercial property and professional buy-to-let loans. Photograph: Reuters/ Toby Melville

 

Metro Bank has drawn up plans to sell more than £1 billion (€1.15 billion) worth of loans at the centre of a misreporting scandal that caused its share price to plunge and forced it into a rights issue.

The move would be a significant reversal of strategy for the former darling of Britain’s challenger banks, which won admiration from investors for its rapid growth but changed its approach after the discovery of an embarrassing accounting error.

At the start of this year, the upstart lender was found by regulators to have miscalculated its risk-weighted asset tally and over-reported its capital ratios as a result.

Craig Donaldson, chief executive, told the Financial Times: “Two of our asset classes saw the risk-weighted assets held against them go up, therefore return on equity went down. One of the ways we could address that would be to securitise them or sell the book.”

The bank has discussed the idea of a sale with investors, but Mr Donaldson stressed that it had not made a final decision on what to do with the loans, which amount to more than 10 per cent of its total loan book.

Accounting error

The accounting error involved large numbers of commercial property and professional buy-to-let loans. Because of the mistake, Metro found it did not have as much capital against them as it should have done.

Metro had a total of £4.1 billion of commercial and buy-to-let loans at the end of 2018, of which about £1.7 billion was directly affected by the risk-weighting changes. Its total loan book grew 38 per cent to £15.2 billion in the year to the end of March.

The bank had already said it would cut back on new lending in the affected sectors. But Mr Donaldson’s latest comments, made after the impact of the mistake became clear in its first-quarter results, are the first time the bank has acknowledged it may also offload a sizeable chunk of its existing assets. – Copyright The Financial Times Ltd