Metro Bank shares jump on upgraded guidance

The London-listed company reported a narrower underlying loss before tax of £26.8m for its first half on Wednesday, a reduction from the £33m loss recorded in the second half of 2023.

That improvement came despite a lower net interest margin (NIM) of 1.64%, down from 1.85% in the prior period, primarily due to higher deposit costs following a successful deposit campaign in late 2023.

The bank's NIM did improve in the second quarter to 1.74%, reflecting a gradual recovery.

Metro Bank upgraded its financial guidance, forecasting a return to profitability in the fourth quarter.

Its board said it expected mid-to-upper single-digit returns on tangible equity (RoTE) in 2025, with further improvements leading to double-digit RoTE in 2026 and mid-to-upper teens in the following years.

That optimistic outlook was driven by continued cost discipline, asset rotation, and the recent sale of a £2.5bn mortgage portfolio.

Metro Bank also reduced its underlying operating expenses by 6% to £255m, achieving £17m in savings compared to the prior half.

The bank said it was on track to realise £80m in annualised run-rate savings by December.

As part of its strategic repositioning, the bank's total net loans decreased 6% to £11.5bn as of 30 June, as it shifted focus towards higher-yielding commercial, corporate, SME, and specialist mortgage lending.

Customer deposits stood at £15.7bn, slightly down from the peak of £16.5bn in February, as the bank deliberately reduced its liquidity and deposit costs.

Despite that, Metro Bank maintained a robust credit-approved commercial pipeline, with first-half 2024 drawdowns reaching 81% of total new lending in 2023.

The bank's minimum requirement for own funds and eligible liabilities (MREL) ratio increased to 22.2% as of 30 June, up from 22% at the end of 2023 and significantly higher than the 18.1% recorded a year earlier.

It said the sale of the mortgage portfolio, announced after the reporting period, was expected to further enhance the bank's capital position, improving the MREL ratio to a pro forma 23.4%.

Metro Bank also expanded its physical presence, with new branches under construction in Chester and a lease signed in Gateshead as part of its commitment to growth in the North of England and East Midlands.

The bank was targeting further NIM expansion, with expectations to approach 2.5% in 2024, 3.25% in 2025, and 4% in 2026, alongside a continued focus on reducing the cost-to-income ratio in the coming years.

“Metro Bank has made significant underlying progress during the first half of 2024,” said chief executive officer Daniel Frumkin.

“We have built real momentum in credit approved pipelines across commercial, corporate and SME lending, whilst expanding spreads in retail mortgages and repricing deposits.

“At the same time, our continued cost discipline is creating a simpler, more agile bank that is fit for the future.”

Frumkin said the company’s upgraded guidance reflected progress against its strategy, including the recent residential mortgage portfolio sale.

“We expect these actions to positively impact on our balance sheet in the fourth quarter of the current financial year, delivering a return to profitability.

“We look to the future with renewed confidence, as we continue to strengthen and deepen our people-people banking and relationship-led services in areas our FANS value the most.”

At 1016 BST, shares in Metro Bank Holdings were up 19.85% at 48.39p.

Reporting by Josh White for Sharecast.com.