Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Metro Bank Holdings PLC (MTRBF, Financial) expects to return to sustainable profitability in the fourth quarter of 2024.
- The company has increased its guidance on return on tangible equity, aiming for mid to upper single digits next year, double digits in 2026, and mid to upper teens thereafter.
- Net Interest Margin (NIM) is projected to increase significantly, reaching 4% by 2026.
- The company has made substantial progress in cost discipline, with GBP50 million of the GBP80 million in annualized savings already executed.
- Metro Bank Holdings PLC (MTRBF) is expanding its product offerings, including the launch of a limited company buy-to-let mortgage product, and is actively seeking new store locations to enhance its presence.
Negative Points
- The company has faced challenges with high-cost fixed term deposits, which have impacted margins.
- A significant reduction in headcount by 23% raises concerns about operational risks and maintaining service quality.
- The transition away from the RateSetter brand and unsecured personal lending due to unfavorable pricing dynamics may lead to potential write-downs.
- The company's strategy relies heavily on the successful execution of a GBP2.5 billion mortgage sale, which is yet to be completed.
- There is uncertainty regarding the impact of future interest rate changes on the company's financial performance, as the plan is sensitive to rate expectations.
Q & A Highlights
Q: Can you clarify what you mean by "approaching" in your NIM and cost of risk guidance? Does it refer to the average for the year or the end of the year?
A: It refers to period-end NIMs, indicating where we expect to be by the end of the year. The journey is over 12 months, and you can estimate the progression from the start to the end of the year.
Q: Regarding the RateSetter acquisition, why are you moving away from it, and could there be a write-down if it's being mothballed?
A: The RateSetter acquisition was initially beneficial, but pricing in the unsecured personal market has become inelastic, reducing margins. We may reenter this business in the future, but currently, it doesn't meet our risk-adjusted return criteria.
Q: With a 23% reduction in headcount, how do you ensure that operations remain stable and risk doesn't increase?
A: We have a dashboard with 14 measures monitored independently by the risk function. We track every detail and have made adjustments where necessary to maintain operational stability.
Q: Can you provide more details on how you're reducing deposit costs and what levels you're targeting?
A: We are reducing fixed-term deposits and have decreased rates on boost savings products. Our cost of deposits was 2.12% in Q2, and we aim to bring it below 2% in the second half of the year.
Q: Are you formally pulling back from the AIRB process, and are there other portfolios you might sell due to AIRB considerations?
A: Work on AIRB continues, but its value is less with our new portfolio mix. No other portfolios are planned for sale due to AIRB, and rethinking our AIRB position allows us to focus on commercial and corporate growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
