Shares in ‘challenger’ financial Metro Bank (MTRO) rose 4% to 62p on relief that its latest trading update contained no obvious bad news, although the lack of detail in the release was stark.

The bank reported flat deposits for the third quarter compared with the second quarter, and a 2% rise in loans ‘driven by continuing government-supported business lending’.

LACK OF DETAIL

Unusually though, there was no information on net interest income, the net interest margin, the level of expected credit losses as a percentage of loans, the amount the bank needs to provision for credit losses or to what extent underlying losses had worsened from the first half level of £183.4 million.

The bank simply said it had extended £1.3 billion in government-backed business loans through the ‘bounce-back loan scheme’ since the beginning of the crisis, which would imply an increase of £300m in the third quarter, and that the economic scenarios it applies to the measurement of expected credit losses ‘remain appropriate’.

In terms of consumer lending, the bank reported that the number of active payment deferrals among its mortgage customers had dropped to 3.5% of the retail portfolio during the third quarter from 16% at the end of the first half.

Chief executive officer Daniel Frumkin commented Metro had ‘delivered a good performance’ and ‘made further progress against the strategic priorities set out at the beginning of 2020, completing the acquisition of RateSetter and launching new initiatives’.

CAPITAL QUESTIONS

There was no explanation, however, as to why the bank’s regulatory capital fell from 21.3% in the second quarter to 20.2% last quarter, which is above the Prudential Regulatory Authority’s minimum requirement but below the necessary 20.5% level including ‘buffers’.

One reason for the drop would be if losses ate into the bank’s capital during the quarter, although due to the lack of detail there is no way of confirming this either way.

Bulls of the stock are hoping that the PRA will lower its capital requirement for mid-sized banks such as Metro in its upcoming review. Jefferies analyst Joseph Dickerson described the review as a ‘game-changer’ in terms of releasing capital, saying it could lift the bank’s medium-term return on tangible assets by up to 4% which in turn would generate a substantial re-rating of the shares.

READ MORE ABOUT METRO BANK HERE

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Issue Date: 21 Oct 2020