I should add of course the jury is out on how asset quality evolves as loan book grows in the case of MTRO and the fact that no specific CoR guidance has been imparted probably doesn't help (though you can effectively backward engineer). But so far so good it has to be said. Overall it doesn't get much analyst attention given size and can be overlooked a lot in my experience. Let's see how it plays out!
On PTSB I hear you - they must have felt there would be enough bidders to get sufficient value for jam tomorrow. Of course the State was keen to sell too... Interesting to see that Bankinter officially ruled themselves out today.
Also, did write a long comment on PTSB but lost it. Basically, still don't understand the formal sales process at this stage in the bank's journey. Returns will surely improve (like, a lot) and it's hard to see any acquirer paying a price that is better for shareholders than just holding on as the bank's earnings get better. There is/was big scope for buybacks and other capital returns at the current share price, too.
On Metro specifically, it's worth noting that repricing of treasury assets and retirement of £525 million of now-surplus expensive (12%) MREL paper are on their own sufficient to get to management's target ROE. These two boosts to earnings seem relatively baked in, albeit not immediate, obviously (MREL in particular, which has a call date in 2029 I believe, although management might try to buy back some of it before the call date).
Of course, this does assume no material deterioration in credit quality or other adverse developments. I merely make the point that there are two huge NII tailwinds that seem about as nailed on as anything can be.
Hi Phil, thanks for the note and I hear you. Am purposefully not giving valuation views but there are some clear tailwinds as you say - the issue with the MREL one is it is long-dated unless they tender. I think the market's concern is on the other pillars of the strategy - esp. asset rotation (will it be able to deliver the loan growth needed?), followed by NIM (ex-treasury repricing), and a bit of doubt around the continued cost reduction delivery. However, it's a relatively iliquid name in the sphere of banks and has had a chequered history so those factors likely weigh too. To the extent management continues to deliver and reaffirm guidance over the next 2 years, that will hopefully be quite helpful.
I should add of course the jury is out on how asset quality evolves as loan book grows in the case of MTRO and the fact that no specific CoR guidance has been imparted probably doesn't help (though you can effectively backward engineer). But so far so good it has to be said. Overall it doesn't get much analyst attention given size and can be overlooked a lot in my experience. Let's see how it plays out!
On PTSB I hear you - they must have felt there would be enough bidders to get sufficient value for jam tomorrow. Of course the State was keen to sell too... Interesting to see that Bankinter officially ruled themselves out today.
Makes sense. I'd not seen that Bankinter had ruled themselves out, but have just read the comments.
Mood music from the sale isn't that positive so far, IMO.
Also, did write a long comment on PTSB but lost it. Basically, still don't understand the formal sales process at this stage in the bank's journey. Returns will surely improve (like, a lot) and it's hard to see any acquirer paying a price that is better for shareholders than just holding on as the bank's earnings get better. There is/was big scope for buybacks and other capital returns at the current share price, too.
Still doesn't make sense to me, at all.
Excellent piece, John. Really, really informative stuff.
On Metro specifically, it's worth noting that repricing of treasury assets and retirement of £525 million of now-surplus expensive (12%) MREL paper are on their own sufficient to get to management's target ROE. These two boosts to earnings seem relatively baked in, albeit not immediate, obviously (MREL in particular, which has a call date in 2029 I believe, although management might try to buy back some of it before the call date).
Of course, this does assume no material deterioration in credit quality or other adverse developments. I merely make the point that there are two huge NII tailwinds that seem about as nailed on as anything can be.
Hi Phil, thanks for the note and I hear you. Am purposefully not giving valuation views but there are some clear tailwinds as you say - the issue with the MREL one is it is long-dated unless they tender. I think the market's concern is on the other pillars of the strategy - esp. asset rotation (will it be able to deliver the loan growth needed?), followed by NIM (ex-treasury repricing), and a bit of doubt around the continued cost reduction delivery. However, it's a relatively iliquid name in the sphere of banks and has had a chequered history so those factors likely weigh too. To the extent management continues to deliver and reaffirm guidance over the next 2 years, that will hopefully be quite helpful.