Fresh Lawsuits Filed Against Metro Bank On Breach of CMA Regulations

Lending Institution Metro Bank PLC has been in the news for quite some time now. Whether it has been related to unplanned overdraft alerts, lawsuits by customers or financial losses in the year 2019, the stock of Metro Bank has been struggling through several internal and external challenges.

Since the start of the year 2020, the stock is moving south. In the first week of January 2020, it was listed on London Stock Exchange at GBX 209.20, but now the stock price has dropped down to GBX 96.92 as at 21 April 2020.

Recently, several customers of the bank filed a complaint that they were charged for unarranged overdraft without being informed. The investigation has been done by Competition and Market Authority (CMA) and found that the customer’s claims regarding the charges is true even when the authority had already introduced the rules for the Banks to provide important alert messages to their clients and customers before charging them. Moreover, the enquiry has shown that bank has failed to refute the claims and has reportedly agreed to pay £10.5 million overdraft fee repayments with 8 percent interest on the fees.

The senior director for remedies, businesses and financial analysis of CMA, Adam Land, stated that the order to send the text messages to all the customer regarding fees cut is an advantageous way to avoid unexpected costs. It is a distress to know that still the customers are being charged wrongly by Metro Bank.

Now, it seems that the bank has to take the burden in addition to its loss-ridden financials announced in February 2020. The bank made a statement on huge losses and blamed that it suffered due to collapse on a £88 million write-down of intangible assets, consisting millions related to the loan issues. In January 2019, the bank admitted that it had misclassified some loans which pressurized Metro Bank to use of additional cash to minimize the potential losses. After the announcement of its FY 2019 results, the company got another headwind of a fresh lawsuit by the group of Iranian customers in March 2020. As per the customer’s statement, the bank had suspended their accounts without informing them on prior notice. The Iranian customers, which includes the group of around 17 claimants, asked for approximately £1.5 million in damages. The group includes not only Iranian citizen in the UK but also include British-Iranian citizen and many of the several companies.

This legal threat has now become a major challenge to the Metro Bank as it is already facing huge losses and another negative news are touching the company. As per the media report, one of the representatives of the bank stated while talking about the recent lawsuit, that Metro bank has been following the UK regulators responsibly to reduce the financial crime as well as maintain the integrity of the UK financial systems.

Financial Highlights

During the financial year ended 31 December 2019, Metro Bank had the challenging time due to the impact of debt interest expenses coupled with the external headwinds. The company reported a loss before tax of £11.7 million which is in comparison to the profit of £50.0 million reported in the previous corresponding year, reflecting a negative change of 123 per cent. Some of the key highlights of the company’s results are as follows:

• Statutory loss before tax was reported to £130.8 million, down from prior year’s £40.6 million profit. The change primarily reflects an impact driven by £68 million write-down of intangible assets.
• The leverage ratio of the company increased to 6.6 per cent, which is more than the Basel Committee’s minimum capital requirement of 3.0 per cent.
• However, the company reported a growth of 43 percent in its net fee and other income driven by customer growth and the launch of fee-earning services.
• The company faced massive headwind due to competitions pressure, political uncertainty of Brexit, low-interest rate and regulatory landscape.
• The company has discontinued some work in progress or IT projects which impacted the intangible assets of the company.
• During the year 2019, the company’s share price decreased to £2.02 from £16.94 due to reducing deferred tax asset with regards to the share options and paid £1.2 million to the deferred tax charge.

Overview of Metro Bank

Metro Bank Plc (LON:MTRO) focuses on lending the money and accepting deposits from customers. As per the Competition and Market Authority's Service Quality Survey, the company achieved the top position for its mobile application and online services. It is a leading High Street bank that has sits among the top players for providing the high-quality store services and overall services for business and personal services. Headquartered in Holborn, London, Metro Bank employs approximately 3,500 work staffs.

Online and Mobile Banking Services (Source: Company website)

Stock Price Performance - MTRO

(Source: Thomson Reuters)

Metro Bank stock is trading at GBX 96.92, down 0.70 percent or GBX 0.68 as at 21 April 2020 (2: 53 PM GMT). In last one year, the company’s stock reached to the highest price of GBX 893.50 on 23rd May 2019, in contrast, the company also fell to the lowest price of GBX 69.0 in the last one year on 16th March 2020. If we compare the current price with a one-year lowest price, it shows that stock price has increased by 37.5 percent.

As on 21 April 2020, the market capitalisation of MTRO was reported at GBP 168.28 million with regards to the stock’s current market price of the company. Metro Bank Plc’s free float and shares outstanding stands at 122.97 million and 172.42 million, respectively.