Metro Bank’s takeover plans for Ratesetter could stumble over concerns about its reputation being trashed if the peer-to-peer lender’s existing loans go bad and investors lose money.
Metro announced last week that it was in talks to buy Ratesetter, a peer-to-peer lender which puts people wanting to borrow together with 84,000 people wanting to lend.
But sources said Metro’s board fears that, with Covid hitting people’s ability to repay their loans, there could be a flood of defaults, triggering a surge of bad publicity for Metro as Ratesetter lenders lose their money.
The issue is considerable given the negative publicity that has dogged Metro since its accounting and corporate governance scandals last year.
Metro, under new management, is keen on Ratesetter’s technology but is not interested in buying out the current £850 million loan book.
Price is another factor. Some analysts have talked of a valuation of £45 million to £50 million although rivals in the industry suspect it may be less than half of that amount as Ratesetter faces a cash crunch.
Ratesetter’s loan book is not thought any worse than rivals’ and no savers have yet lost any of their capital.
But, with the economy expected to be hit hard by Covid, that could change dramatically.
Last month Ratesetter halved lenders’ interest rates, putting the other half into a reserve fund to cover losses from defaults.
Primarily, Metro wants the technology and expertise that the fallen fintech star has built up over the past decade so it can lend from its own balance sheet.
Metro’s new chief executive Dan Frumkin has said he is keen to bolster Metro’s activities in personal loans, where profit margins are higher than in savings accounts and mortgages.
Ratesetter has built up sophisticated risk measuring models like scorecards that can individually price each loan – skills Metro does not have.
Sources said Metro would use the Ratesetter brand to make loans through price comparator websites and the Metro Bank name for loans taken out in its branches.
Metro Bank shares crashed last January after it revealed hundreds of millions of commercial property loans had been wrongly classified in risk terms in its accounts.
Its chief executive Craig Donaldson quit in December, following founder and chairman Vernon Hill.