Metro Bank: Weak Results, Large FY25 Downgrade

Metro Bank (MTRO LN) 4Q23 results include a major downgrade to FY25 expectations, published with the recent capital raise. This is not a EUR (or IG) issuer but a salutary lesson of the danger of deposit outflows driven by a weakly-profitable bank.

• Key credit metrics: loan losses are in line with expectations and non-performers have ticked up to 3.1% (from 2.9% at Jun-23). CET1 ratio is 13.1% (flat on Jun-23 if the capital raise is backdated) and, importantly, it would seem deposit flows have stabilised.
• At the time of the capital raise (9-Oct-23) mgmt stated “RoTE in excess of 9% in 2025” which has promptly been downgraded to “low single digit”. This is clearly not a good look. Consensus is for high single digit RoTE in FY25.
• The raise (GBP150m equity, GBP175m of MREL capital and GBP600m debt refinancing) was supported by >75% of bondholders at the time.
• The bank was in exclusive talks with Barclays to sell c.GBP3bn of UK mortgages but this deal foundered in Dec-23.

Conf call is 0900 London time at https://webcast.openbriefing.com/metrobank-mar24/