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To be fair Cyberdog, while I often agree with your comments, I do not fully agree that on core metrics the share was substantially overvalued at 1.30p. Consensus estimates for 2027 PAT are £200m on a (target) TNAV of £1.2b at an ROE of 16%. That would on standard industry metrics give it a 2027 value of c.£1.5b (1.2x BV or 7.5x earnings) which at a 13% CoE would value it at about £1060m or £1.60 a share today. To get to the c.£1.10 a share, you are putting in a discount rate of >20% which (despite management incompetence) is high given that there is no magic in delivering the target- it is literally a case of deploying treasury assets into lending assets and letting the last of the unhedged assets roll over. The reason why it is at £1.10 (and why I didnt make out lie a bandit when it was 30p a share) is because of the inherent risks with the ownership structure. As we saw last week, as soon as someone wants to crystalise gains by selling significant volumes, the price tanks. So Galinski needs an anchor investor to do the block trade if he wants out (which given his Colombian interests seems likely). The big trade buyers have no interest (Metro too small), there is not significant upside on a stand-alone PE trade and some of the usual suspects like Shawbrook now have a very tangible MREL dis-synergy. So you really need a mid-sized buyer already in MREL (e.g. YBS) or a smaller specialist who would remain outside MREL post consolidation to take it on. Synergies wont be huge, so they will not overpay given the circumstances. But I still think £1.50p a share a reasonable ambition if rates stay up, but it is a "hold and hope" play.

The point around moving to a transfer resolution treatment is that Metro would not need to hold the contingent (debt) capital at all. They don't need to refinance it, they could just pay it down via excess liquidity (of which they have billions). There is actually £525m of MREL debt at 12% and they could also pay down the £150m of Tier 2 debt at 14% and still be way above their MCR ( CET1+AT1=16.8% vs MCR of 13.7%). But as TGTD notes, the call date for he MREL not until April 2028 (2029 for T2) and the debt is trading above par now. The premium they would have to pay (Frumkin said its 14% so I guess £70m) would be booked as a loss. They could afford to do that and still be above reg requirements but the residual £760m of CET1 is very thin and I doubt the regulator would be happy. On the other point, the deferred tax assets is clearly a thing which most people knew about, and was discussed on the results call. It would be very useful for a profitable trade buyer, if we can find an interested party (which as per previous note, is a bit tricky with the new MREL thresholds)

Agree with much of what Maybe67 says except his calc of what Galinski put in. He initially invested c.£20m to gain a 10% share of the bank back in 2019, and then put in c.£90m to up that to a 53% ownership when the board and management sold the retail investors down the swanny. So he is sitting on a nice paper profit but needs a way to crystalise it.

Meanwhile the board that agreed to sell the £800m of book value the original shareholders owned at the point of re-capitalisation for £50m (yep 6% TBV) are now keen to pay Frumkin >£20m if he is able to get the share price back to the £2 a share it was when he took over (which is basically a gimme if rates stay up). Its an absolute scandal, but hey ho.

I am no fan of management, who have been at best incompetent and certainly have little consideration for retail investor's interests. And I have been wary since the re-capitalization, since the stock is so open to manipulation and ultimately there is a huge overhang which will weigh depending on as and when Galinski wants to crystalise his gain. But if interest rates stay up, and they do not attempt some expensive transformation, it's hard to see how even these fools can not, over time, deploy £4-£5b of excess liquidity into more productive lending. And that should generate c.£200m in profit by 2028 (assuming rates stay in the 3-4% range). That underpins a valuation in 2028 of c.£2b (as would the c.£200m of dividends my modelling suggests is available at that point). NPV that back and you are around £1.80 a share today. So there is a clear upside from here. Best way to crystalise is for a buyer to split the difference on this value (i.e. offer Galinski £1.50 a share). But the MREL decision is ironically a bit of a problem as a combination would push One Savings, Paragon or Shawbrook into MREL territory. I would love a capable management team to take on the business, but it doesn't offer P/E like returns as a stand-alone entity. So for me its a hold and hope

The point about the MREL debt is that it is trading above par today. So assuming that it is no longer needed after 1st Jan 2026, while they could buy it all back, any premium to par will be booked as a loss (i.e. come off CET1). Lest we forget, they sold a mortgage book at a £100m loss (because they failed to use product hedges) for the optics of accelerating margin accretion. Its exactly the same equation here (i.e. you take the loss up front but it is made up in higher margin thereafter). They may not feel the same pressure to play with the optics. But they can call the debt in 2027 at which point that is a £60m boost to the P&L. Moreover, in the interim, MREL was a binding constraint on growth. Without it, they could look at buying a higher yielding book to accelerate what likes pretty slow progress to use up the £5b of excess liquidity they are sitting on.

Some very good short term news- a beat on profit built on better than expected cost control and again some very low credit losses. Even better they have confirmed they expect to move to a transfer rather than bail-in resolution treatment, which is hugely beneficial

Longer term, concerning to see current accounts continue to decline. Doesn't make a big difference in short-term, but ultimately this was the differentiator for the bank and without it, its increasingly a bet on a benign credit environment. The credit losses themselves, while helpful in near term, suggest they were getting something very wrong in previous calculations for commercial coverage, given how much it is coming down. And yield on lending lower than implied in guidance- so they are having to price below their target 350bps on commercial and 200bp on specialist mortgages to get the volume.

But overall grounds to underpin a higher share price than today- 1.50p not a bad bet.

I am with you Legal Beagle. Share price shoots up on takeover rumours but doesn’t correct down when there is no deal. Then a transformational MREL outcome comes out and has minimal impact (unless that underpins why no correction for takeover not materialising). Then we see a 5 percent drop on no news, and a partial correction this morning. Overall it seems to me that with a closely held stock, it’s really only when you have a big buyer or seller that moves the dial. Obviously a surprise in the results would likely have an impact, but I have heard nothing to suggest we won’t be landing in the 20-30m PBT at half years expected.

Particularly as Conin source of that quote too - grounds for optimism given his longer piece explicitly lays out the path for Metro to move to a transfer resolution strategy.

Or not! Looks like Barclays have come out with a £1.10 price target which is weighing on it.

Bounce apparently!

For those that can access, there is an interesting note from John Cronin that just came out as I was writing previous response that makes the case that Metro might come out of the bail in regime (Cronin produces a newsletter called "Financials Unshackled"). He says, "it seems to me that MTRO should be eligible to move to a ‘transfer’ resolution strategy in time, which would obviate the need for the bank to raise MREL-eligible debt providing it is meeting minimum capital requirements."

This comes down to an interpretation of what the BoE is saying about the transactional accounts thresholds- the consultation does make very positive noises i.e. the consultation

"confirmed it expects to set MREL equal to MCR for transfer firms, with the effect that MREL imposes no additional requirement for loss absorbing capacity, as it is satisfied entirely by the firm meeting its MCR – this means that the indicative transactional accounts threshold will no longer result in MREL;"

So it seems to come down to whether the BoE is willing to move Metro from a "bail in strategy" to a "transfer strategy." You could argue there is no particular rationale for doing this now, particularly since there were no willing takers when the BoE tried to hand Metro over to them in Oct 2023. But the statements regarding the new BRRA 25 (the ‘recapitalisation payment mechanism’) does explicitly cover "mid-sized banks" which seems to point to Metro potentially falling into this category. Moreover, it gives the BoE a chance to be generous to Metro (recognising that MREL effectively caused the recent run on the bank so is if anything is causing stability problems rather than solutions as it did at Co-Op)

In short, I can now see where a post 2027 upside would come from (i.e. the MCR for Metro is 13.7% vs 21.2 for MREL) and they might build up a bit of excess liquidity across 2026/7to pay it all off once it is callable

So there may be more of a bounce tomorrow once this has been properly digested or it may come with the results presentation assuming they are positive and Metro lays out more clearly what they think might happen (although they may be limited in what they can say until 1st jan 2026)

RBC are the house brokers so you would expect them to have an educated view. The reference is to 2027, so perhaps they are talking about calling the MREL then but would like to see their maths. I personally don't see it as a huge upside, but to be fair, that is because I would expect the MREL coupon to substantially reduce on refinancing anyway. Per previous discussions, I would agree that the discount rate on 2027 valuation has come down since we first discussed this, on the basis that we are a year closer, rates have stayed up, credit conditions are benign and they have yet to have messed anything up regarding infrastructure/compliance (as far as we know). So I do see £1.50 as a reasonable target.

Not sure- what specifically do you see analysts saying? Would like to see someone spell out how any benefit might be realised (i.e. how the £500m of MREL with 14% coupon comes off the balance sheet) even if the transactional account issue was overcome. The bank could well produce new plans to show the regulator it has no plans to get to get to £25b in assets and it is possible the regulator might be further persuaded that transactional accounts should not qualify a bank below that level (despite the BoE explicitly saying in its consultation paper today that it was not convinced banks with the combination of vulnerable customers and established SMEs like MREL could avoid unacceptable disruption). But even if it overcomes that. it still won't be producing enough profit to pay off all the debt from free cash. I reckon it would take 3 or 4 years anyway (but could probably replace with cheaper non contingent tier2 debt on the call date which would be a bit cheaper)

Had a good look at this. What we know is that if anyone is going to have requirements changed it will be discussed individually and happen at the earliest on 1st Jan 2026. However, it is not just assets that define whether you are "bail in" vs "transfer" in terms of resolution approach-It is the number of transactional accounts- and the indicative number here is 80-100,000 accounts vs the 1.3m current accounts (and 5% of small business current accounts) that Metro holds. So this points to the requirement staying as is for Metro given the potential disruption to customers of a disorderly wind-down. Moreover, contractually, even if the requirement was lifted, Metro would have to pay back the MREL holders at fair value (i.e. including NPV of contractual interest payments) util the call date- and it does not have the free cash to do this. If anything it feels a bit net negative to the extent that if someone narrowly outside the parameter like Paragon had an interest in acquiring Metro, it is now less likely they would do a transaction given they have more room to grow organically and stay outside MREL. I think we are waiting for the call date on current MREL in 2027 at which point it should be possible to refinance at a more respectable price. IRB is probably irrelevant for Metro now, given that it has/plans to put on a lot of commercial lending where IRB would be negative (plus it was always questionable whether gaining IRB would actually help given the bank would likely get a Pillar 2 add on). Ring-fencing also a medium term negative in that the big guys might start competing for deposits again. In short, having stuffed Metro, Co-Op, TSB and Virgin with MREL, it feels like the regulator has kinda acknowledged they were wrong but then handed their competitors a leg up while the last one standing gets minimal benefit.

Suspect more to do with absence of a formal offer. TSB price underpins a higher valuation for metro which might have put Pollen off. But I still maintain that Galinski needs an out at some point

Agree something is afoot. Things might shake out once we see what is happening with TSB. I increasingly have a niggle that they could fold Metro into Pollen’s Marlin Bidco (paying out the small shareholders at a small premium to current price) roll Galinski’s equity into the vehicle and smash together with TSB and Shawbrook). Strong industrial logic and gives JG a higher proportion of the embedded upside in Metro and his expertise in stripping out costs, of which there are a lot in TSB)

Probably wishful thinking, but it would not be a huge surprise if Galinski has lost patience with the incompetence. Board likely under pressure to show it is independent so can stand up to Galinski and resist a sale. But clearly he can sell his stake if he wants. I assume if he did sell an acquirer would be obliged to buy us all out (unless another shareholder vote to waive). Is that right?

Tbh, I missed out on doubling down at 30p because I thought Galinski would in some way squeeze us out, and that cost me. If Galinski had wanted to take private, would have done so when the price was much lower, but seems he likes the 52% ownership number. If we could work out the logic of that, might be easier to predict what next, but I haven't really worked it out. Contrary to your view, I think he is pushing short term performance ahead of long term franchise value. The question is whether he will tolerate another round of Frumkin's transformation (e.g. blowing money on poorly executed re-platforming) or push for a transaction. If I were him, it would be the latter

I guess Pollen made no formal offer, so Metro don't have a price they can say they rejected. And I don't think Galinski will want to put Pollen's noses further out of joint. As mentioned, Galinski (and the other major holders) have to find a way of crystalising a paper gain. All well and good saying that there is organic upside, but he isn't going to find it easy to shift 50% of the shares without a trade buyer in such a thinly traded stock.

Interesting to note the final paragraph in Sky News report on TSB/Santander last night, when referring to the Metro rumour:

"The absence of a statement from either party implies that the approach was rejected and that Pollen Street has abandoned its interest, at least temporarily."