Metro Bank Memo 101221
- Understand whether Metro Bank can become viable under its current turnaround strategy and capitalisation
- Understand how resolution would likely be implemented were Metro Bank to end up there – balance sheet valuation under resolution and recovery prospects for non-preferred senior (NPS), Tier 2 and equity investors
- Understand how Metro Bank and its credit investors, shareholders and landlords could agree an “early recovery plan” to restructure debt and potentially “store” leases outside of resolution, to maximise recoveries for all and put the bank on a path to sustainable profitability and organic capital generation
- Understand why Metro Bank could attract further private equity interest but also how we believe any private equity acquirer can obtain the most financially attractive entry point through which to obtain control
- Understand why other banks are less likely to acquire Metro Bank but what any motivation for them would be (large incumbents vs challenger banks vs specialist banks)
- Understand extent to which interest rates need to rise and the asset and liability yield basis assumptions needed to put Metro Bank on a sustainably profitable path
- Understand how much Internal Ratings Based approach (IRB) accreditation for Metro Bank’s residential mortgage portfolio could benefit the bank, how likely Metro Bank is to get it, over what time horizon and whether it would be enough to make the bank viable
- Understand the extent to which Metro Bank is sub-scale relative to its high fixed cost base vs other UK banks
- Understand how landlords could face significant rent losses in resolution
- Understand Everest assessment of scenario probabilities
- Resolution analysis – likely resolution tools and strategy to be used; resolution valuations (base and bear cases); recovery prospects for NPS, Tier 2, equity and landlords
- Early recovery plan analysis – how bondholders could seek to restructure outside of resolution
- Financial projections (including projected capital and MREL ratios vs requirements) – taking into account current turnaround strategy (increased interest income from increased consumer unsecured and specialist mortgage lending), decline in “Change The Bank” costs and in non-recurring items, including higher capital intensity of loan book mix increase in consumer unsecured and specialist mortgages
- Operating leverage analysis of Metro Bank vs rest of UK banking landscape – big 5 banks, other challenger banks, building societies, specialist banks and digital banks
- Rising interest rates scenario
- IRB accreditation scenario
- What are Tier 2 and NPS recoveries in resolution and how sensitive are they to key assumptions?
- How can higher recoveries for all stakeholders be achieved under a suitable early recovery plan than in resolution?
- What is the best way for large distressed investor(s) or private equity to take control of the bank?
- Which alternative turnaround / pivot strategies could be applied to Metro Bank?
- What can we learn from Co-Op Bank’s experience with restructuring to guide a suitable path away from resolution for Metro Bank?
- Where is Metro Bank likely in the application process for IRB accreditation for residential mortgages? What are likely hurdles to overcome, likely extent of capital requirement reduction should it receive IRB accreditation and is this enough to enable Metro Bank to comply with its capital and MREL requirements going forward?
- How active has private equity been in the UK specialist and challenger banks sector? Transactions multiples
- View, Variant Perception & Recommendations
- Business & Financial Overview & Analysis
- Base Case – Financial Projections
- Resolution Analysis Of Metro Bank – Resolution Base & Bear Cases
- How Bondholders Could Try To Restructure Outside Of Resolution
- Is Metro Bank Viable? What Are Possible Turnaround Strategies?
- Could Rising Interest Rates Make Metro Bank Sustainably Profitable?
- M&A Prospects. How Likely Is Metro Bank To Be Acquired By Another Bank Or Private Equity (PE)? What Is The Best Way For PE To Acquire?
- How Much Could IRB Accreditation Benefit Metro Bank, How Likely Is It To Get It & Would It Be Enough To Make Metro Bank Viable?
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