UK-based high-street bank Metro Bank has signed an agreement to sell a portfolio of owner-occupied residential mortgages to NatWest in an all-cash deal worth up to £3.13bn.
According to Metro Bank, the portfolio involved in the deal has a gross book value of £3.04bn and a weighted average rate of 2.08%.
Included in the portfolio are mainly repayment mortgages that have an average remaining fixed-rate term of nearly 2.5 years. It is said to have a similar geographic distribution to Metro Bank’s larger mortgage portfolio, while having a weighted average current loan to value of around 60%.
As part of the deal, more than 13,000 customers linked with the portfolio will be transferred to NatWest. In line with current arrangements, the customers will continue to be serviced by Metro Bank.
NatWest CEO Alison Rose said: “Growing our mortgage book is an important strategic priority as we build a bank that delivers sustainable returns for shareholders. The addition of this loan book will supplement the strong organic growth that we continue to achieve.
“Our strong capital position, well above the target range, continues to provide the flexibility to navigate the uncertain environment and support our customers during the challenging times ahead.”
For Metro Bank, the sale aligns with its strategy to boost risk-adjusted returns on capital through the ongoing focus on optimisation of its balance sheet.
Metro Bank said that the 2.7% premium on gross book value will give it an estimated gain of £83m from the transaction. The bank said that the deal removes any current requirement to issue minimum requirement for own funds and eligible liabilities (MREL) qualifying debt.
The deal will therefore increase its MREL resources. Besides, it will provide additional lending capacity to help the bank rebalance its asset mix towards specialist mortgages, unsecured loans, and other higher yielding assets.
Metro Bank CEO Daniel Frumkin 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 deal is anticipated to be closed during the first quarter of 2021.
