Metro Bank is in “advanced discussions” to acquire peer-to-peer lender RateSetter, it has been revealed.
The two companies have entered into a period of exclusivity, with the bank showing a particular interest in the platform’s consumer loan book.
The possible acquisition was first reported by Sky News on Sunday night, citing unnamed sources close to the discussions.
“[Metro Bank] regularly assesses various opportunities in the market and accordingly confirms that it has entered into a period of exclusivity with RateSetter, but discussions regarding the potential acquisition are at an early stage,” said a Metro Bank spokesperson in a statement.
“RateSetter is a UK-focused P2P lender whose distribution platform could accelerate the Company’s stated strategy to grow its unsecured consumer lending book.
“There can be no certainty at this stage that a formal agreement will be reached, nor as to the terms of any agreement. A further announcement will be made if and when appropriate.”
By the end of April 2020, RateSetter had a loan portfolio of approximately £800m, and an average yield on its loan assets of approximately 4.4 per cent.
In 2018, Metro Bank reported revenues of £404.1m. However, the FTSE-listed bank has seen its share price drop by almost 90 per cent over the past year, following a reporting scandal and governance issues.
In February of this year, Daniel Frumkin was appointed as the new chief executive of Metro Bank, replacing Craig Donaldson, who stepped down as both chief executive and chairman.
“Our view is that [Metro Bank’s] principal challenge is profitability given the low-yielding nature of its assets and an acquisition of RateSetter…would provide a little bit of help in this respect – adding £35m of annual interest income,” said John Cronin, an analyst with Goodbody.
“But the reality is that we forecast [Metro Bank] will remain in deep loss-making territory over the coming years.
“The more interesting angle with a RateSetter acquisition is that it provides a lending platform that [Metro Bank] can leverage to further boost its average asset yield – which is essential in a profitability context. So, in principle, an acquisition of RateSetter presents compelling industrial logic for [Metro Bank] in our view.
“While there may be a fixation on RateSetter’s current numbers in the post-news analysis (including what its loan losses might look like), this avenue for potential growth is the important point in our view.
“RateSetter is a leading player in the P2P industry and reports much lower average defaults than peers.”
Metro Bank previously partnered with Zopa in 2015, in a first-of-its-kind deal which allowed the bank to lend its funds via the Zopa platform. Just three years ago, Metro Bank’s then-chief executive Donaldson said that the partnership had “contributed very little” to its first-quarter results, and ruled out any further investment in unsecured consumer loans.
Both RateSetter and Metro Bank declined to offer any further comment.