Wednesday 26 February 2020 5:00 pm

Metro Bank shares plumb new depths after challenger bank swings to £131m loss

Metro Bank will slash its growth plans after plunging to a £131m pre-tax loss in 2019, a devastating year in which an accounting scandal sent shares plunging and led to an exodus of the bank’s top brass.

Shares in the company fell as much as 19 per cent in morning trading to an all-time low of 155p, but pared back most of the losses to end the day 3.1 per cent down at 186p.

The figures

Metro Bank booked a £130.8m pre-tax loss, compared to a profit before tax of £40.6m in 2018.

That meant investors took a loss per share of 123.9p, compared to 2018’s 29.1p earnings per share.

While net fee income rose 43 per cent, driven by customer growth, net interest income dropped seven per cent to £308.1m. 

Read more: Metro Bank launches cash delivery service to woo smaller firms

This was due to a weak net interest margin — a key measure of profitability — which fell to 1.51 per cent compared to 1.81 per cent in 2018.

Deposits fell by eight per cent to £14.48bn, with an increase in deposits from retail customers failing to offset hundreds of millions of pounds of withdrawals from businesses in the wake of the accounting error.

Metro Bank also restated a plan in order to deliver a return on tangible equity of over 8.5 per cent by 2024.

Why it’s interesting

2019 was a pretty dismal year for Metro Bank, after it emerged that the bank had under-reported its exposure to higher-risk loans by almost £1bn. 

The lender had to raise £375m in new shares following the discovery of the error, and founder and chairman Vernon Hill and chief executive Craig Donaldson have since left the bank.

Metro Bank’s market value has crashed almost 90 per cent since the error emerged, and it is under investigation by the Financial Conduct Authority and Bank of England’s Prudential Regulation Authority.  

Earlier this month, it emerged that Metro Bank had launched a major review of its compliance controls after handling money from Iran and Cuba, in breach of strict US and EU sanctions. 

The lender said it was not yet “practicable to identify the likely outcome or estimate the potential financial impact of these matters”.

Metro Bank also disclosed that it is facing a class action in the US, which it said was “based on breaches of US Federal Securities laws arising from allegedly false and misleading statements in relation to its loan book”. 

The lender said it intends to “vigorously defend” the proceedings, which are at an early stage, and that it was not yet possible to estimate their likely financial impact on the company,

Read more: Metro Bank CEO Craig Donaldson to step down

Metro Bank also said this morning that it will return £50m of an £120m it was controversially awarded last year by the Banking Competition Remedies’ (BCR) Capability & Innovation Fund, after revising down some ambitious growth targets.

The lender is now planning to open a total of 15 rather than 30 branches in the north of England by 2025.

Goodbody analyst John Cronin described the results as a “lamentable performance”, and said the repayment of the BCR funding was “ embarrassing for both parties”.

“We are not saying that it is impossible to resuscitate Metro Bank but we reiterate our view that radical action with the help of third party loan assets (or potentially a fast injection of much lower cost deposits, which feels unlikely) is needed.”

“Perhaps this is what the board wants too but it’s hard to start believing without seeing such action,” he added.

What Metro Bank said

“Our financial performance reflects a very challenging year for Metro Bank,” said Dan Frumkin, who was appointed chief executive on a permanent basis last week. 

Read more: Metro Bank to be loss-making ‘in 2020 and beyond’, Barclays warns

“We’ve fully evaluated our strategy, and have a clear plan which will return the bank to sustainable growth built around a community banking model.”

Analysts have suggested that Metro Bank may need to sell some or all of its business in order to survive.

Frumkin declined to tell reporters whether the lender had been approached by potential buyers or had appointed advisers for a potential sale, adding: “There is nobody actively marketing the place for sale”.