Consolidation to continue with Metro for sale; expect limited appetite from large UK banks

Metro Bank (not covered, market cap of GBP1.2bn at 6.2x BBG PE 28E, 0.9x spot P/TNAV) has announced a strategic review of its business, including the launch of a formal sale process. This follows the path of continued consolidation within the UK Banking sector, particularly within challenger banks given limited scale economics, despite the post-GFC push from policymakers for greater competition. We expect large UK banks to show an interest in the assets and liabilities of Metro Bank which are focused in the Commercial segment (GBP4bn core) and mortgages (c.GBP5bn including c.GBP2bn core specialist on over 200bps margin) alongside deposits of GBP13bn including c.GBP6bn current accounts, with the Group noting it maintains the lowest cost of deposits (98bps 1H) relative to high-street banks. However, we see asset/liability sales as unlikely from Metro Bank's perspective unless in a break-up scenario, as scale represents the Group's greatest challenge. We expect large UK banks to show limi