The major loan book error in January left a hole in Metro's balance sheet and wiped more than £1.5 billion its market value.

Sky News reported on Sunday that Metro was readying a £500 million deal to‎ offload a mortgage portfolio back to U.S hedge fund Cerberus Capital Management.

Metro said in a statement on Monday it was in talks to sell a loan portfolio, but gave no details on the type of loans or potential buyer.

In February 2018, Metro agreed to buy mortgage debt from several Cerberus-linked companies for £523 million, after buying a mortgage portfolio from the U.S. firm in June 2017 for £596.7 million.

While Metro, led by founder and chairman Vernon Hill, managed to raise £375 million in an over-subscribed share sale in May, the stock remains down 72% since the start of the year.

John Cronin, financials analyst at broker Goodbody, said selling loan assets made sense but was cautious about the impact on future profitability.

"Balance sheet shrinkage is never ideal in the case of a company that has attracted an investor base owing to its high growth prospects. However, capital sufficiency trumps growth and profitability considerations at the current time," he said.

Metro shares were up 3.7% in early trade, among the biggest gains on Britain's FTSE mid-cap index <.FTMC>.

Cronin told clients in a note that any bounce in the shares could be a good opportunity to lay bets on future falls.

"Any excitement that drives share price gains ... in response to this (Sky) news article should be seen as an opportunity to build on a short position," he wrote.

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by Rachel Armstrong and Mark Potter)

By Noor Zainab Hussain and Simon Jessop