Metro Bank will snap up peer-to-peer lender Ratesetter after agreeing a £12m sale it hopes will push it into more profitable banking avenues.
The challenger bank will pay an initial £2.5m, it said today, and another £9.5m over the three years following the completion of the deal, based on performance criteria.
Daniel Frumkin, Metro Bank’s chief executive, said the acquisition will help his company pivot to more profitable areas of banking like unsecured lending.
“The ability to enhance our offer of unsecured lending to our customers is an important strategic ambition as we continue to evolve the bank and increase our returns,” Frumkin said.
“Ratesetter is an established business with a strong technology platform and a talented team who have deep experience in the consumer unsecured lending market. This acquisition therefore accelerates our plans, helps us to better meet the needs of our customers and further strengthens our position as the UK’s best community bank.”
Metro Bank wants to shift away from its focus on the competitive, low profit margin mortgage business.
The bank endured a tumultuous 2019 after revealing a major balance sheet error. The accounting scandal was followed by the departure of the bank’s top brass. And its shares sank to an all-time low in February this year as it swung to a £131m loss.
It also launched a major review of compliance controls after handling money from Iran and Cuba, breaching US and EU sanctions.
Metro’s February loss was accompanied by Frumkin saying the bank would focus on growing its unsecured lending business.
John Goodbody, a financial analyst at Goodbody, called the acquisition “a positive move” for Metro. “We see the need for the business to develop further into higher-yielding lending segments,” he said, with Ratesetter offering a way to do this.
But he warned the purchase “is not, in and of itself, a panacea in the context of the wider challenges” affecting Metro Bank.
Ratesetter, founded in 2010, has seen more than 750,000 people invest or borrow via its platform with a total of £4bn lent out. It reported revenue of £33m in the year to 31 March 2019, coupled with a pre-tax loss of £8m.
Its chief executive, Rhydian Lewis, said: “I am excited at the prospects of this combination. Ratesetter and Metro Bank share a focus on delivering something better for the customer and the strategic logic of pairing Metro Bank’s strong deposit base with our lending capability is compelling.
“Metro Bank is admired for its fresh approach to banking and I am looking forward to helping the bank expand its offering and meet more customer needs.”
Shareholders controlling a total of 60 per cent of Ratesetter’s shares must approve the deal, with the acquisition set to close by the fourth quarter.