Metro Bank share price could move higher after weeks of sideways movement

Metro Bank has finally seen its shares move higher, up as much as 5% on Monday, with the lender’s RateSetter deal and management shake-up helping to improve investor sentiment.

However, concerns still remain for investors, with the lender opting to not disclose its capital reserves in its first quarter (Q1) trading update in May, fuelling fears that the bank is undercapitalised and, therefore, poorly positioned to weather further economic shocks.

Metro Bank is trading at 114p per share at the time of publication, with the stock down 45% year-to-date.

The UK-based challenger bank will unveil its half-year results on 5 August, with investors eagerly awaiting an update on the lender’s performance amid challenging market conditions that have squeezed margins and increased the size of bad loans on its balance sheet.

RateSetter deal helps improve investor sentiment

Metro Bank entered into an exclusivity deal with peer-to-peer lender RateSetter in mid-June, with the deal representing a major turning point for the troubled challenger bank that would see it diversity away from mortgage lending and help lift its downtrodden share price.

It is still unclear whether Metro Bank wishes to acquire the lending platform developed by RateSetter or if it is interested taking over its loan book, valued at around £800 million. But the acquisition could help the UK challenger bank to recover from the economic fallout of Covid-19 and its accounting error scandal which wiped millions of its market value and created a £350 million capital shortfall for the lender.

The RateSetter deal is valued at around £50 million, though analysts have said that Metro Bank could acquire the company’s tech platform at a ‘knockdown price’.

‘[Metro Bank’s] principal challenge is profitability given the low-yielding nature of its assets and we previously opined that an acquisition of RateSetter at a ‘knockdown price’ would provide some help in this respect, while also providing a lending platform that [Metro Bank] can leverage to drive further higher-yielding lending growth,’ John Cronin, an analyst at Goodbody, told P2P Finance News.

‘The c.£50m price tag implies that [Metro Bank] has ample capital to execute such a transaction (CET1 ratio of 15.6 per cent at end-FY19), though it is understandable why the board is weighing up the risks of a transaction in the current climate,’ he added.

However, it is important to note that the stock has shown signs of a recovery with the bank’s share price up 50% since 1 June and capable of trending higher as lockdown restrictions begin to ease in the UK and economic activity picks up.

Metro Bank management shake-up helps share price trade higher

Last week, Metro Bank announced that it had appointed Robert Sharpe as its new chairman, a man capable of helping the challenger bank’s boss Dan Frumkin to turn the business around and considered a proven dealmaker in the retail banking sector.

Sharpe has a wealth of board and executive-level experience in retail banking, with him leading the transformation of West Bromwich Building Society and heading up Bank of Ireland's consumer business in the UK.

‘As we navigate the new economic environment caused by Covid-19, community banking has never been more important as people, businesses and communities adapt to this new normal,’ Sharpe said in a statement.

‘It is this community banking model that sets Metro Bank apart and will enable us to continue to grow,’ he added.

Sharpe will take over from Michael Snyder as Metro Bank’s new chairman on 1 November.

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