Metro Bank's model 'bruised' but 'intact', Jefferies says
Metro Bank Holdings
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16:55 03/05/24
Metro Bank needs to demonstrate over the remainder of the year that it is capable of generating less capital-intensive balance sheet growth, but while "bruised" in the wake of January's warning on capital, the lender's model remained intact, analysts at Jefferies said.
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That capital warning resulted in a £566m drop in deposit balances, with half of that coming from reductions in retail partnerships.
But excluding partnerships, retail deposits increased during the first quarter and were 33% higher year-on-year, Jefferies pointed out.
And at 2.80%, the lender's net interest margin plus fees was trending 10 basis points above the broker's expectations for fiscal year 2019.
Cost growth of 2% year-on-year on the other hand was "high" versus Jefferies's expectations.
Regarding Metro's depleted CET1 capital buffers, which fell by 100 basis points quarter-on-quarter during the first three months of the year to 12.1%, Jefferies pointed out that 40% of the decline was the result of the shift to IFRS 16.
It further noted that a £350m capital raise would suffice to boost its CET1 cushion by approximately 360 basis points.
"The bottom line on Q1 19 results shows that January’s capital warning had a transitory impact on deposit balances.
"In terms of earnings estimates, we see near-term risk from a disappointing outcome (i.e. underlying Q1 PBT of £5.0m compares to a scant consensus of £6.6m). MTRO needs to illustrate over the remainder of the year that it can generate less capital intensive balance sheet growth."
Jefferies kept its 750p target price for the lender's shares, reiterating its recommendation to 'hold'.