Metro Bank today confirms the sale of a portfolio of owner occupied residential mortgages (the "Portfolio") to NatWest for a cash consideration of up to £3,128 million.
The Portfolio has a gross book value of £3,045 million with a weighted average rate of 2.08%. The Portfolio consists of primarily repayment mortgages with an average remaining fixed-rate term of c.2.5 years. The Portfolio has a similar geographic distribution to Metro Bank's wider mortgage portfolio and has a weighted average current loan to value of c.60%.
The 2.7% premium on gross book value results in an estimated £83 million gain on sale. On completion, the disposal is expected to result in a 30 September 2020 pro-forma improvement in Metro Bank's total capital plus MREL ratio of 400bps from 20.2% to 24.2%, and a 30 September 2020 pro-forma CET1 ratio of 16.3%. The transaction removes any current need to issue MREL qualifying debt.
The transaction is in line with Metro Bank's strategy to enhance risk-adjusted returns on capital through the ongoing focus on balance sheet optimisation. In addition to increasing the Bank's MREL resources, the sale creates additional lending capacity and enables Metro Bank to rebalance asset mix towards higher yielding assets such as specialist mortgages and unsecured loans.
Commenting on the disposal, Daniel Frumkin, Metro Bank's Chief Executive Officer, said:
"As part of the transformation strategy we set out at the start of 2020, we have been focusing on balance sheet optimisation to drive better risk-adjusted returns on capital. The sale of part of our residential mortgage portfolio will provide us with further lending capacity and enable us to shift our asset mix and expand our unsecured lending portfolio, following our entry into the market with the acquisition of RateSetter earlier this year. The transaction also removes any current need to issue MREL qualifying debt."
There may be an adjustment to the financial impact and consideration paid at completion under which loans representing up to 10% by value of the Portfolio may be excluded from the sale, equal to a potential reduction in consideration of less than £313 million. Beneficial risks and rewards of the Portfolio will transfer to NatWest as at the date of this announcement and the transaction is expected to financially close during the first quarter of 2021.