Metro Bank (LSE: MTRO) shares jumped by 37% to 55.20 pence on Wednesday, following the company’s announcement of its plans to return to profitability by the end of the year. This significant rise in share price reflects growing investor confidence in the bank’s turnaround strategy and improved financial outlook.

The high street lender reported a pretax loss of £33.5 million for the first half of 2024, compared to a profit of £15.1 million in the same period last year. Despite this loss, Metro Bank’s cost-cutting measures and recent strategic moves have sparked optimism among investors.

Key factors contributing to the share price surge include:

  • Cost savings: Metro Bank has reduced its underlying operating expenses by 6.3% to £255 million, with plans to deliver £80 million in annualised run-rate savings by December 2024.
  • Asset rotation: The bank recently sold a £2.5 billion mortgage portfolio to NatWest Group, which is expected to improve its balance sheet and create additional lending capacity.
  • Improved profitability outlook: Metro Bank now expects to return to profitability in the fourth quarter of 2024, earlier than previously anticipated.
  • Upgraded guidance: The bank has increased its return on tangible equity (RoTE) guidance, projecting mid-to-upper single-digit returns in 2025, double-digit in 2026, and mid-to-upper teens thereafter.
  • Net interest margin expansion: Metro Bank forecasts its net interest margins to approach 2.50% in 2024, 3.25% in 2025, and 4.00% in 2026, driven by asset rotation.

CEO Daniel Frumkin expressed confidence in the bank’s progress, stating that the upgraded guidance reflects the success of their strategy, including the recent mortgage portfolio sale.

The bank’s plans for geographical expansion, with new sites in Chester and Gateshead, also signal confidence in its growth prospects.

While Metro Bank’s revenue fell by 10% to £234.0 million in the first half of 2024, the market appears to be focusing on the bank’s future potential rather than its current financial performance. The combination of cost discipline, strategic asset management, and improved profitability outlook has clearly resonated with investors, leading to today’s significant share price surge.

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