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UK’s Metro Bank buys mortgage portfolio from Cerberus Capital: Reuters

Metro Bank Plc said it bought a mortgage portfolio from a company owned by U.S. private equity firm Cerberus Capital Management LP for 596.7 million pounds ($768.2 million), augmenting its loan book with primarily buy-to-let mortgages.

The British lender, which offers retail, business and private banking, said all lending in the portfolio is secured on property and has a similar credit risk profile to its current mortgage book.

“The acquisition of this high-quality loan Portfolio supports our high-growth, organic business model as we track ever closer to our 2020 guidance,” Chief Executive of Metro Bank, Craig Donaldson, said.

The acquisition of UK mortgages will increase the loan-to-deposit ratio to about 78 percent, compared with the 2020 guidance of 80 percent, Donaldson added.

“While the loan book grows 9 percent to 7.1 billion pounds, we regard this portfolio acquisition as incremental as opposed to transformational,” analysts at Jefferies, who rate the company a “buy” said.

“The company has provided limited detail on terms of the transaction. While terms were not disclosed, we believe it is likely that Metro would have sought a transaction that is accretive to earnings,” the analysts said.

Metro, which listed on the London Stock Exchange last year and is Britain’s first new High Street bank in over 100 years, has said it was on track to deliver a full year of profitability in 2017.

The acquisition of the mortgages, being bought at a discount to face value, will be financed using cash from existing resources.

The portfolio, bought from Cerberus European Residential Holdings B.V, is made up primarily of buy-to-let mortgages, with the rest being owner-occupied.

Buy-to-let is a form of residential investment in which you buy a property, typically with a mortgage, with the view of renting it out.
According to the Council of Mortgage Lenders, the UK mortgage market is worth 1.3 trillion pounds, representative of 11.1 million mortgages, and is the largest in Europe in terms of amount lent per year and the total value of outstanding loans.

Throughout the final months of 2016 the buy-to-let market saw lenders tightening criteria ahead of the Prudential Regulation Authority’s (PRA) underwriting changes.

However, Metro said in April that its residential mortgages stood at 4.02 billion pounds at the end of March, up from 2.56 billion pounds at the same time in 2016.

Shares in Metro Bank were up 0.4 percent at 3,733 pence.