NatWest to purchase £2.5bn of Metro Bank mortgages

NatWest boss Paul Thwaite revealed profits were down but it would buy mortgages from Metro Bank

NatWest has agreed to buy a £2.5billion residential mortgage portfolio from Metro Bank.

The High Street banking giant posted a 16 per cent decline in pre-tax profits to £3billion for the six months to 30 June.

NatWest blamed the decline, which was better than forecast by analysts, on weaker mortgage margins as redemptions offset new lending, while competition in the savings market also led to customer shifting deposits to higher-paying products.

The taxpayer’s stake in NatWest has halved to below 20 per cent over the last year but the Tories’ mooted Tell Sid-style public share sale was canned once the general election was called.

NatWest’s total income of £7.1billion was down 7.7 per cent on the same time last year, while net interest margin – a key profitability measure of the difference between savings and loans – was down 16 basis points to 2.07 per cent.

Banks had initially made bumper profits as the Bank of England rapidly raised interest rates and they pushed up mortgage costs faster than savings returns. But a stalling mortgage market, combined with pressure to offer savers better rates has eaten into earnings. 

NatWest, which says it added ‘over 200,000 new customers’ in the first half, was buffered by an increase in lending and the impact of having one more day in the first half of this year than in 2023.

But costs were also £149million higher than the same period last year, reflecting costs in relation to a potential retail share offering of £24million, additional bank levies of £83million and a net impairment charge of £48million.

Nevertheless, NatWest has upgraded its full-year expectations for return on tangible equity from 12 to 14 per cent, on income of £14billion – up from £13billion to £13.5billion previously.

Boss Paul Thwaite said: ‘The positive momentum and progress in the first half reflect the ambition across the bank to deliver its full potential.

‘Our customers are beginning to feel more confident, with activity increasing and asset quality remaining strong, and we are well positioned to help unlock growth across the UK through our unrivalled regional network.

‘Fundamentally, if we succeed with our customers, we will succeed for our shareholders and the wider economy.’

The first-half result echoes that of rival lender Lloyds, which on Thursday also posted a better-than-expected profit decline despite a weaker mortgage market.

NatWest upped its interim dividend by 9 per cent to 6p-per-share.

Natwest shares soared 7.6 per cent to 363.9p on Friday morning, bringing gains since the start of 2024 to almost 70 per cent. 

Metro Bank sells mortgage portfolio to NatWest

It also emerged on Friday that NatWest would pay Metro Bank up to £2.4billion in cash for a residential mortgage portfolio with a gross book value of £2.5billion.

The deal reflects broader NatWest efforts to enlarge the group, which is set to take on a million more customers following an agreement to take-on the bulk of Sainsbury’s banking arm.

Metro Bank said the mortgage portfolio it will sell to NatWest has a weighted average motgage rate of 3.79 per cent, and consists primarily repayment mortgages with an average remaining fixed-rate term of 2.3 years.

‘The Portfolio has a similar geographic distribution to Metro Bank’s wider mortgage portfolio and has a weighted average current loan to value of c62 per cent,’ it added.

At a 4.2 per cent discount on gross book value, the deal results in an estimated £105million loss on sale because the loans were originated in a lower rate environment.

Metro Bank boss Daniel Frumkin said: ‘The sale of part of our residential mortgage portfolio is earnings, NIM and capital ratio accretive.

‘The sale is in-line with Metro Bank’s strategy to reposition its balance sheet for higher risk adjusted returns on regulatory capital. The additional lending capacity provided by this sale will enable us to continue our shift into high yielding assets in niche and underserved markets and become a specialist lender of choice.’

Metro Bank shares were up 3 per cent to 39p in early trading.