A market report in the Evening Standard, citing a “thick-wristed Merlot man” in a City wine bar, said the chances of a deal in the New Year were “six out of 10”.
It went on to say that a takeover would make sense for both parties due to Metro Bank’s current lending costs, which are “so high that writing new mortgage business isn’t profitable” and the bank will need a stronger partner to grow.
The acquisition will also be of benefit to Lloyds, the rumour mill said, as Metro was currently trading at “less than a quarter of book value, so Lloyds gets to pick up the assets cheaply”.
“What would Lloyds do with the brand and branches? I suppose it could keep it separate, but if you are paying that little you can afford to keep what you want and chuck away the rest”, the report went on to say.
Metro Bank has been in a vulnerable state since early 2019 after revelations of an accounting blunder in February sent its shares plunging. As of market close on 31 October, the bank’s stock is 87% lower than at the start of January.
Since then, the bank has been forced to raise £375mln in a cash call to keep itself afloat, while its co-founder, US businessman Vernon Hill, stepped down as chairman with immediate effect last week.
Metro’s fragile financial position means a Lloyds takeover would be “welcomed by the regulator”, so the speculation went, while the steep decline in the shares will allow the equine-branded bank’s boss, Antonio Horta-Osorio, to “buy it with the change in his back pocket were he minded”.
Long-term investors may get shivers recalling the last time Lloyds bought a troubled smaller rival, bringing back memories of the disastrous takeover of Halifax Bank of Scotland (HBOS) during the 2008-09 financial crisis.
In lunchtime trading, Metro Bank’s shares were 9% higher at 221p, while Lloyds' were up 0.3% at 57p.