NatWest has purchased a £2.4 billion ($3.09 billion) mortgage portfolio from Metro Bank, marking a strategic move to expand its retail banking footprint amid fierce
mortgage market competition in the UK. This acquisition has led NatWest to revise its performance outlook for the year, boosting investor confidence despite a 16% decline in its first-half operating profit.
The deal signifies a significant cash infusion for Metro Bank, which has been grappling with profitability issues in a competitive banking environment dominated by larger players with access to cheaper funding. The acquisition aligns with NatWest's strategy to scale its retail banking operations, as intense competition among British banks continues to compress profit margins.
Following the announcement, NatWest shares surged 8%, reaching their highest level since February 2015, while Metro Bank shares increased by 5% in early trading.
NatWest reported a first-half profit of £3 billion, a slightly better outcome than analysts had anticipated. The decline in profit reflects the broader challenges faced by British banks, including stiff competition in the mortgage sector and a shift of deposits by savers to higher-yielding products.
In a show of confidence, NatWest raised its 2024 return on tangible equity forecast to above 14%, up from the previous estimate of 12%. Additionally, the bank now expects its annual income to reach around £14 billion, surpassing the earlier projection of £13 billion to £13.5 billion.
This optimistic outlook follows a similar update from Lloyds Banking Group, which, despite reporting a 14% drop in first-half profit, expressed positive expectations for the latter half of the year.
NatWest CEO Paul Thwaite commented, "Our customers are beginning to feel more confident, with activity increasing and asset quality remaining strong. We are well positioned to help unlock growth across the UK through our unrivalled regional network."
This month, NatWest also noted a reduction in the government’s stake to below 20%, edging the bank closer to full private ownership after its 2008 financial crisis bailout.
Metro Bank Deal
Analysts have reacted positively to the acquisition of Metro Bank’s mortgage portfolio. Hargreaves Lansdown analyst Matt Britzman remarked, "The acquisition of £2.5 billion worth of prime mortgages from Metro Bank suggests inorganic loan book growth is on the table. NatWest is poised to benefit from many of the sector's positive trends."
Metro Bank, established post-2008 financial crisis to challenge major banks, secured a £925-million rescue deal last year after significant deposit outflows. Struggling to achieve sufficient profitability, the bank has been attempting to rebrand itself as a specialist lender in niche and underserved markets. Poor market conditions previously forced Metro Bank to abandon the sale of the mortgage portfolio in December, but the bank has recently revived these plans to stabilize its operations. Photo by Philafrenzy, Wikimedia commons.