Metro Bank could pay between £25m and £50m to acquire RateSetter, according to new reports, as analysts predict that the platform could be bought at a “knockdown price.”
Earlier today (29 June), The Telegraph quoted a Metro Bank source who said that the bank was concerned it would look bad if RateSetter’s loans defaulted – a growing risk given the fragile state of the pandemic-hit economy.
The source also revealed that Metro Bank’s board was more interested in buying RateSetter’s technology than acquiring its book of loans.
“If you go to a Metro branch and want an unsecured loan, it would take two to three hours [to assess] and most would get a ‘no’ as the bank doesn’t have the sophistication of data to make an informed decision,” the source told The Telegraph. “With this deal, the technology would be provided by RateSetter [and] the loans would be white-labelled as Metro.”
This would enable Metro Bank to offer RateSetter loans through price comparison websites, reaching a larger audience and benefiting from RateSetter’s rapid and detailed credit-checking technology.
Meanwhile, some analysts have predicted that RateSetter could be acquired for between £45m and £50m, while other industry commentators have speculated that it may be sold for less than half of that amount.
RateSetter’s loanbook is currently worth approximately £850m, representing more than 84,000 lenders.
“[Metro Bank’s] principal challenge is profitability given the low-yielding nature of its assets and we previously opined that an acquisition of RateSetter at a ‘knockdown price’ would provide some help in this respect, while also providing a lending platform that [Metro Bank] can leverage to drive further higher-yielding lending growth,” said John Cronin, an analyst at Goodbody.
“The c.£50m price tag implies that [Metro Bank] has ample capital to execute such a transaction (CET1 ratio of 15.6 per cent at end-FY19), though it is understandable why the board is weighing up the risks of a transaction in the current climate.”
Metro Bank’s shares crashed in January 2020 after an accounting error led to a £350m capital shortfall at the bank.
Read more: What’s happening at RateSetter?