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Metro Bank shares dip as mortgage risk model change drags

Published 12/09/2023, 08:40
Updated 12/09/2023, 08:46
© Reuters. FILE PHOTO: People walk past a Metro Bank in London, Britain, May 22, 2019. REUTERS/Hannah McKay/File Photo

(Reuters) - Britain's Metro Bank said on Tuesday that the Bank of England's Prudential (LON:PRU) Regulation Authority (PRA) would likely not approve its application to use internal credit risk models in its residential mortgages business this year. "In its latest discussions, the PRA has indicated that at this stage more work is required by the company which means approval will not be attained during 2023," the lender said in a statement.

Shares in the lender fell 7% in early trading as stock-holders reacted to the news. Without permission to use its own risk models, Metro Bank remains subject to higher capital requirements set by the regulator, which have weighed on returns for its investors.

"The board retains conviction in the merits of Metro Bank's customer-centric model and strongly believes that there is a significant opportunity set that the company can capitalise on, subject to renewed balance sheet strength," Metro said.

In a note to clients on Monday, analysts at Peel Hunt (LON:PEEL) said the lender had two options to break out of its "current capital/scale straitjackets" - either a fund-raising to bring capital ratios up to "sustainable levels" or M&A.

"Larger scale is needed to absorb the high, branch-centric expense base which can be achieved only if current capital constraints ... are resolved," Peel Hunt said.

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