It’s been a bruising two years for the Metro Bank share price, as well as a tough time for shareholders. 

Metro Bank share price in '90% club'

The bank is now a member of the so-called '90% club', in that Metro Bank's share price is now over 90% down from its heady peaks of 2018, when the perception was that management could do no wrong.

Last year the wheels came off in spectacular fashion, after the bank announced it had mis-stated the value of its loan book, which meant it needed to raise extra capital to shore up its balance sheet. If that weren’t bad enough, chairman Vernon Hill faced questions about loans to a company run by his wife, while CEO Craig Donaldson was under fire over his stewardship and management of risk for a bank that, at one stage, looked if it might not get the funding it needed to survive.

Management shake-up

Metro Bank did manage to finally secure £350m at the end of last year, however it was at a significant cost of 9.5%, and Chairman Hill also had to go, though Mr Donaldson managed to avoid the chop in the interim. That stay of execution didn’t last though, and it soon became apparent that his position was also untenable, and he also stepped aside in December. This was just as well, as he would have probably been asked to go when it came to light earlier this month that Metro Bank was under investigation by regulators for handling money from Iran and Cuba, both countries who are under EU and US sanctions. The fact that this could happen, along with the earlier problems, shows that the previous management seemed to be either completely clueless about managing risk, or were simply incompetent.

Battle to restore trust

Against that backdrop and this morning’s results, incoming CEO Dan Frumkin has a huge task in restoring trust and competence to a bank that has much higher funding costs than its peers, in a sector where margins in the sector are already tight and unlikely to improve in the short- to medium-term.

Today’s numbers highlight the challenges facing the current management, with the bank announcing total underlying revenues of £400.1m, a decline of 1%, while posting a huge statutory loss-before-tax of £130.8m. This compared to a £40.8m profit in 2018, the bulk of which comprised a £68m writedown of intangible assets. On an underlying basis without the various intangibles, this still came in at a loss of £11.7m.

Net interest margin also fell from 1.81% to 1.51%, with Metro Bank blaming a £521m loan disposal, as well as £1.5bn of treasury asset sales and higher deposit costs. Management said that they would consider further disposals in order to optimise the balance sheet if the opportunity to do so arose. For Q4 that fell to 1.3%, with an expectation that 2020 would deliver a similar result.

Rise in new accounts

In terms of the outlook, management said that tight cost control remained a primary objective, with a ROTE of over 8.5% expected to be achieved by 2024. On the plus side, new customer accounts pushed above the 2m mark, up from 1.6m in 2018, while the bank was rated number one in services for stores, online and mobile banking. However the lack of growth in deposits was disappointing, where we saw a decline of 8%.

Given Metro Bank's problems over the last 12 to 18 months, the size of today’s loss shouldn’t be too much of a surprise, and this will inevitably garner the main headlines. Looking more closely, the bank's higher cost base and lower interest margin will ensure that the road back to respectability is likely to be a long one for new CEO Dan Frumkin.

 

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination. CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information. CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.

CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.