July 22, 2019 / 6:23 AM / 5 months ago

Struggling UK lender Metro Bank in talks to sell loans

(Reuters) - Metro Bank (MTRO.L) is in talks to sell a portfolio of loans in the British lender’s latest attempt to strengthen its finances after an accounting error hammered its shares.

FILE PHOTO: Signage is seen outside of a Metro Bank in London, Britain, May 22, 2019. REUTERS/Hannah McKay/File Photo

The major loan book error in January left a hole in Metro’s balance sheet and wiped more than 1.5 billion pounds ($1.9 billion) off its market value.

Sky News reported here on Sunday that Metro was readying a 500 million pounds deal to‎ offload a mortgage portfolio back to U.S hedge fund Cerberus Capital Management.

Metro said in a statement on Monday it was in talks to sell a loan portfolio, but gave no details on the type of loans or potential buyer.

In February 2018, Metro agreed to buy mortgage debt from several Cerberus-linked companies for 523 million pounds, after buying a mortgage portfolio from the U.S. firm in June 2017 for 596.7 million pounds.

While Metro, led by founder and chairman Vernon Hill, managed to raise 375 million pounds in an over-subscribed share sale in May, the stock remains down 72% since the start of the year.

John Cronin, financials analyst at broker Goodbody, 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.

Metro shares were up 3.7% in early trade, among the biggest gains on Britain's FTSE mid-cap index .FTMC.

Cronin told clients in a note that any bounce in the shares could be a good opportunity to lay bets on future falls.

“Any excitement that drives share price gains ... in response to this (Sky) news article should be seen as an opportunity to build on a short position,” he wrote

Reporting by Noor Zainab Hussain in Bengaluru; Editing by Rachel Armstrong and Mark Potter

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