Fitch rating30 Sep 2019 20:33
Fitch Ratings - London - 30 September 2019:
Fitch Ratings has downgraded Metro Bank's Long-Term IDR to 'BB' from 'BB+' and Viability Rating (VR) to 'bb' from 'bb+'. Fitch has placed the VR on Rating Watch Negative (RWN) and maintained the IDR on RWN.
The downgrades reflect Fitch's view that the bank's business model and ability to execute on its strategy have been impaired by setbacks to its plan to raise senior non preferred debt (SNP) in public markets in September 2019 in order to prepare for upcoming minimum requirements for own funds and eligible liabilities (MREL) at the start of 2020. While the bank will likely persevere with plans to raise SNP, we expect higher than envisaged associated costs to weigh on profitability, which is already under pressure. Furthermore, Metro Bank's business model requires fast growth in order to become profitable, and the funding setback it experienced means that there is a heightened risk that the bank's growth plans will need to be curtailed.
We have revised down our assessment of the bank's company profile to 'bb', funding and liquidity to 'bb' and management and strategy to 'bb-'. Earnings and profitability are already a relative rating weakness at 'bb-'. Capitalisation and leverage (bbb-) and asset quality (bbb+) continue to support the rating and are unaffected.
The RWN on the bank's VR and IDR reflect the heightened uncertainty around its funding profile and ability to meet MREL requirements, as well as its business model in light of pressures on earnings and strategy.
The RWN also reflects the heightened risk that we would downgrade the ratings if the UK leaves the EU without a deal, as we believe that a disruptive 'no-deal' Brexit would exacerbate these risks. Fitch is likely to maintain the RWN on the bank's VR and IDR until after the outcome of the Brexit negotiations is known, which could extend beyond the typical six-month horizon.
KEY RATING DRIVERS
IDRS, VR and SENIOR DEBT
Metro Bank's Long-Term IDR is driven by and is at the same level as its VR, and the long-term senior debt programme ratings are aligned with the bank's IDR. The VR reflects the combination of a relatively immature business model, which requires fast growth in order to become profitable, relatively stable retail funding but uncertain access to long-term wholesale debt, satisfactory capitalisation and good asset quality.
Fitch's assessment of Metro Bank's company profile considers its moderate franchise in a large and mature market. The bank's business model shows limited diversification and also faces challenges in becoming capital-generative through earnings. Its ability to grow into its cost base will remain fundamental to its strategy, given its relatively high costs.
Overall, we consider that execution on Metro Bank's strategy has been variable, and we expect this to continue. Over recent quarters, the bank has had to revise several strategic and financial targets, including lowering its expe
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