Metro Bank handed capital boost from banking watchdog
High street lender Metro Bank is set for a major capital boost after a reclassification from the banking watchdog.
The FTSE 250 firm said on Friday it has received confirmation from the Prudential Regulation Authority (PRA) that it would be listed as a transfer firm under the newly introduced MREL regime from 2026.
Introduced in the fallout from the 2008 financial crisis, MREL (minimum requirement for own funds and eligible liabilities) rules impose strict, tailored requirements on banks with assets between £15bn and £25bn and serve as a regulatory buffer to ensure lenders can be safely resolved in a crisis without taxpayer bailouts.
The Bank of England raised the threshold to £25bn-£40bn in July, an increase from the £20bn-£30bn originally floated in a consultation aiming to introduce growth-centred measures.
Mid-cap banks toast MREL boost
The move hands a significant boost to mid-cap lenders like Metro Bank, which were disincentivised to grow under the previous regime.
The changes will place Metro’s MREL at the minimum capital requirements of 13.7 per cent, effectively slashing the previous boundary in half. This marks a significant reduction in the extra layer of expensive debt Metro must hold as a safety net.
“We are pleased to have received confirmation of our MREL reclassification, as we anticipated following the Bank of England’s announcement in July,” Daniel Frumkin, chief executive of Metro, said.
“This is a positive development which affords us more capital flexibility, enhancing our ability to lend into the UK economy and creating further value for our shareholders”.
Analysts at the Royal Bank of Canada slapped an upgrade on the firm following the changes with sentiment listed as ‘Positive’ and the stock expected to ‘Outperform’ the sector average.
The changes to the MREL regime have been welcomed across the banking sector.
Nigel Terrington, chief executive of Paragon, said the loosening of banks’ capital requirement rules, known as MREL (minimum requirement for own funds and eligible liabilities), will open up further growth prospects for mid-cap lenders.
He told Morning Wire: “Before it was like: ‘That’s a good acquisition, I want to do that’ – and then you realise you get dragged into MREL.”