Disrupter bank Monzo has flagged “significant doubt” over its ability to continue as a going concern, after doubling its losses during the pandemic.
The bank’s losses widened from £47.2m to £113.8m amid a hiring spree, marketing and US expansion. This came even as revenues more than tripled to £67.2m from £19.7m.
Monzo lent out a huge £143.9m, compared to £19.2m in the previous year, but it said it expects credit losses to climb to £20.3m from £3.9m. Of that, £4.1m has been set aside for a heightened default risk associated with coronavirus.
In its latest annual report, Monzo said uncertainty created by coronavirus “cast significant doubt” on its ability to continue. However, it added that its directors were “confident in Monzo’s ability to execute its business plan and raise capital if necessary”.
Last month the bank raised £58m from investors at a 40 per cent discount to its previous valuation.
“Our revenue streams have been significantly impacted by the COVID-19 pandemic and resulting macro-economic uncertainty,” Monzo said. “Regulatory reviews will also lead to stricter financial crime requirements.”
“This may result in lower forecasted customer numbers and revenues, along with increased costs associated with correcting areas of concern,” it added.
“This increases the risk that the Group will not be able to execute its business plan, which could adversely impact its ability to generate a profit or raise sufficient capital to meet future regulatory capital requirements.”
Monzo only recently started lending to customers so it does not risk the same loan losses reported by high street lenders this week. Monzo’s main source of revenue is transaction fees generated whenever a customer pays with their Monzo card. But this was hit by a drop in overseas travel.
The firm has announced cost-cutting measures since the outbreak of coronavirus, including the closure of one US office and announcing more than 100 UK redundancies. It said it had “further measures” available to cut costs but Anil said he did not anticipate further job cuts.
Monzo’s co-founder Tom Blomfeld recently stepped down as chief executive to take on a more “product-focused” role as presidnet, with US boss TS Anil replacing him.
Chief executive TS Anil said: “Similar to many businesses, we’re seeing a significant impact from COVID-19 and the resulting economic downturn. While I’m confident these are short-term, we’ve taken decisive measures to reduce the financial impact.”
“Over the coming months, we’ll launch powerful new products that help people manage their money better, as well as drive revenue, and cement our place as the UK’s most recommended and fastest growing bank.”