Metro Bank shares soar as lender sees return to profit in Q4

By Radhika Anilkumar

(Reuters) -Britain's Metro Bank forecast a return to profit in the fourth quarter on Wednesday following cost-saving measures during the year and a cash injection from the sale of its residential mortgage book, sending its shares 20% up.

Metro, launched in 2010 to challenge the dominance of Britain's big banks, has been overhauling its business and selling some assets to bolster its finances after a rescue deal last October.

Metro Bank expects return on tangible equity (ROTE) - a key measure of profitability - to grow in the mid to upper single digits by 2025.

Europe's largest bank HSBC on Wednesday also set a new goal for its ROTE to be in the mid-teens in 2025.

Metro expects its cost-cutting initiatives, a shift to focus on high yielding assets - commercial, corporate, small and medium enterprise and specialist mortgage lending - as well as repricing of treasury assets to help it meet its target, CEO Daniel Frumkin said on a media call.

Shares in the lender were up 20.5% at 48.45 pence by 0853 GMT, its highest level since October.

Metro Bank secured a 925 million pound ($1.19 billion) rescue deal last October in the wake of volatile trading. It has since implemented cost cuts and aimed to reposition as a specialist lender.

Last week, it agreed to sell its portfolio of prime residential mortgages to NatWest Group for up to 2.4 billion pounds, providing a crucial cash injection.

The company also expects net interest margin (NIM) expansion to 2.50% in 2024, 3.25% in 2025, and by 4% in 2026.

"We are confident that by sticking to our plan to drive NIM growth by rotating assets and improving lending yield, whilst driving down the cost of deposits, we will return the business to sustainable profitability during the fourth quarter of this year," Frumkin added.

It reported a smaller underlying loss before tax of 26.8 million pounds in the six months ended on June 30 from a year ago, primarily due to a lower net interest margin of 1.64%.

($1 = 0.7795 pounds)

(Reporting by Radhika Anilkumar in Bengaluru; Editing by Sonia Cheema and Emelia Sithole-Matarise)