Sunday 21 July 2019 9:38 pm

Metro Bank in talks to sell £500m of loans back to US hedge fund

Struggling lender Metro Bank is set to sell £500m of mortgages back to US hedge fund Cerberus in a bid to shore up its capital position, according to Sky News.

Read more: Metro Bank shares fall further amid boardroom bust-up

In February 2018 Metro Bank bought £523m of buy-to-let mortgages, mainly made up of London and south-eastern properties, from Cerberus to boost its loanbook.

But times have been tough for the bank after an accounting error that classified loans as less risky than they were was revealed at the start of the year. Metro Bank’s shares have fallen over 70 per cent since January to around £4.70.

Sky reported that a source close to New York-based Cerberus said the deal could be announced as soon as Wednesday, when Metro is due to post half-year results.

None of the loans Metro Bank is set to sell are to customers of the lender, which was the UK’s first new high street bank in more than 100 years when it launched in 2010.

The sale would mark a move away from Metro’s expansion of its loan-to-deposit ratio which saw it buy almost £600m of loans from Cerberus in 2017, taking the total assets bought from the hedge fund to over £1bn.

Metro Bank’s chief executive Craig Donaldson told the Financial Times in May that the lender could sell loans to cope with the fallout from the accounting error, meaning it is unlikely to surprise the market.

By calling loans less risky than they were, Metro overstated its capital ratios, which regulators watch to ensure banks can deal with financial shocks.

Read more: Metro Bank shares recover as investors approve £375m capital raise

A Metro Bank spokeswoman said the lender would not comment on the story. Cerberus could not be contacted for comment.