Metro Bank/RateSetter: democratic deficit | Financial Times



Chipping away at the UK’s banking heavyweights has proved costly for challengers such as Metro Bank. Low returns from everyday banking combined with governance problems have reduced its market value to less than £200m. New boss Dan Frumkin thinks a shift in focus to unsecured lending is the best way out of that corner. He took a step closer on Monday. The bank has confirmed it is in discussions to buy UK P2P lender RateSetter.

Lossmaking RateSetter has problems of its own as the dream of democratised finance dies. Fears of a coronavirus-induced default wave sent investors scrambling to get their money out. A liquidity crunch ensued.

Interest payments for remaining lenders were halved last month and funds are being diverted towards provisions. A sale is the best option. Metro Bank could provide the liquidity needed to support the peer-to-peer book, some £800m in loans. For its part Metro would get a new brand and technology platform. Metro Bank could then use its cheap deposits to fund new unsecured loans from its own balance sheet.

At the right price, the deal would set Mr Frumkin on the right foot with shareholders. The comparator is P2P lender Funding Circle, which has done little to unsettle the UK’s banking oligopoly. Listing as a racy technology company in 2018, its shares have fallen 85 per cent since. Valued using similar metrics, RateSetter might be worth £62m.

Metro Bank can afford that, plus the additional regulatory capital requirement. Once up and running, the loan book might add £35m of annual interest income, reckon analysts at Goodbody. Double that is needed if Metro Bank is to become profitable before 2024, as the market currently hopes.

One of the many problems faced by challenger banks is that they have to carry a lot more capital than high-street lenders. They are left fighting with one hand tied behind their backs. The peer-to-peer business has flopped in the UK, as Lex gloomily expected. Unfortunately, challenger banks are faring little better.

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