Metro plc, the British retail bank, is a relatively new bank founded in the year 2010. At its launch, Metro bank was the first new high street bank in over 100 years. The Bank has been aggressive in its approach, aiming to open-up 200-250 branches with ten years of its launch.
Metro Bank is in a turmoil and Craig Donaldson, chief executive of the bank is right at its centre. His public statements have been pretty much out of the common semantics. Last few weeks that passed by did not work well for Metro bank as it admitted to putting some buy-to-let and commercial loans to wrong risk category. It basically meant that bank was not keeping enough capital against the loans as it should have been, and this news led to a 40 percent fall in Metro’s shares.
Post this news, many media platforms reported that claims by Mr. Donaldson on these issues were not entirely true. The shares fell a further 11 percent given the speculation and other concerns popping up in the market. Mr. Donaldson had confirmed that these issues were identified in an internal review, while the errors were actually detected by the regulators that raised the issue with the bank. Prudential Regulation Authority, responsible for checking the health of major lenders in the market, a Bank of England’s arm was the one identifying the error. An internal review was conducted which identified these errors as flagged by regulators.
This whole news and the market-tailored statements from the bank’s Chief executive made shareholders very concerned about risks the bank has been taking and for how long. It is hard to believe that the bank was mistakenly marking the loans in wrong risk category when this is the most basic and important thing for a challenger bank. Also, why did it have to come from a regulator, if a mistake was made it could have been corrected later in some audits or reviews. While Mr. Donaldson has been a critic of challenger banks being subject to stricter capital requirements, it surely seems that with this erroneous categorization of loans the capital requirements were avoided.
Metro Bank, which always had big growth targets raised a debt of £250 million last year and £300 million in fresh equity; and the bank is now reckoned to be short by another £300 million in capital against its wrongly marked loans.
The road ahead is going to be a bumpy one now, its superfast growth model necessitates a good share price, which has fallen drastically. Also, the investor backing to feed its frequent fund-raising requirements has taken a hit. A few other controversies in recent past have hit the bank too, one such controversy last year was the payments worth £21 million made to InterArch. This architect firm is controlled by Shirley Hill, wife of Metro Banks’s chairman Vernon Hill.
It seems hard for Metro Bank to stay on to the same growth trajectory post this latest controversy. The investors, not as comfortable as they were, may force the bank to take a pause and restructure itself. It needs to work towards improving market relations and its balance sheet. As far as Mr. Donaldson’s future in the company is concerned, it doesn’t look as bright as it was just a few days back.
Bucking the latest trend, stock of Metro Bank PLC (LON: MTRO) was up 1.75% by mid-day trading as at February 04, 2019 but the recovery still looks to be on a long channel. The latest revelation of accounting error while the full year result showcased a triple digit pre-tax profit growth, together have laid out a mixed sentiment among investors.
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