Metro Bank, the high street lender which has been beset by problems during a troubled 12-month period, is in advanced talks to buy Ratesetter, one of Britain’s biggest peer-to-peer lenders.
Sky News has learnt that Metro Bank and Ratesetter are in exclusive discussions about a deal, although people close to the negotiations said on Sunday night that there was no guarantee that they would lead to a transaction.
The disclosure of the talks will surprise City analysts and shareholders, who have been expecting Metro Bank to focus on improving the execution of its core strategy under Dan Frumkin, its newly appointed chief executive.
The price that Metro Bank would pay for Ratesetter was unclear, although one insider said the high street lender would be taking it over at “a knockdown valuation”.
If the talks progress satisfactorily, a deal could be struck sometime next month, one source said.
At its peak, Ratesetter had about £1bn of lending on its balance sheet, although its progress has been curtailed sharply by the coronavirus pandemic.
The broader P2P sector has also been hurt by the pandemic, although some players such as Funding Circle Holdings have been accredited under some of the government’s emergency coronavirus lending schemes.
When Sky News revealed in April that Ratesetter was exploring a sale or merger, it responded by suggesting that it was primed to act as a consolidator “rather than potentially being acquired”.
Sources said a deal would have industrial logic for Metro Bank by giving it a new lending platform and distribution capability.
Nevertheless, the high street bank’s recent travails is likely to mean that some investors will be wary about it diversifying at such an uncertain time for the UK economy.
Metro Bank’s shareholders have fallen by more than 80% during the last 12 months, and it now has a market capitalisation of barely £180m.
It remains the subject of a number of regulatory investigations following a financial misreporting scandal.
Ratesetter, which is being advised by bankers at Lazard on the talks, had been examining a fundraising among its other strategic options.
P2P lenders are being challenged by the growing risk of loan defaults among small businesses and individuals, and the accelerating rate of customers seeking to recover their money.
P2P platforms work by matching individual investors with consumers and SMEs which want to raise money.
Ratesetter launched in 2010, and has become the UK’s most popular P2P lenders, with more than 700,000 people having invested or borrowed on the platform.
The company is chaired by Sir Paul Manduca, the respected City figure who will shortly step down as chairman of Prudential.
A source close to the company pointed out that none of its investors had lost money.
In April, its loan portfolio stands at more than £800m, and it has attracted £280m in subscriptions to its Innovative Finance ISA.
Both Metro Bank and Ratesetter declined to comment on Sunday.