Metro Bank is significantly scaling back expansion plans after recording a loss of more than £130m caused partly by an accounting error.
Metro is also handing back nearly half of a £120m award it received last year from a government-backed scheme meant to boost competition in the business banking market, and will pay a £340,000 penalty for falling short on its commitments. The award was made just weeks after the accounting error was disclosed. That scheme is bankrolled by Royal Bank of Scotland, as part of conditions attached to its £45bn bailout during the 2008 financial crisis.
Metro’s share price fell 19% to an all-time low of 155p on Wednesday morning. Two years ago the shares were changing hands at more than £40.
The dismal results are the first since Vernon Hill and Craig Donaldson resigned as chairman and chief executive respectively in the final weeks of 2019 after a turbulent year for the bank. Metro is still in the throes of a regulatory investigation after it classified £900m of loans as less risky than they were.
The bank took a £27m hit to cover the costs of that investigation and a review of its compliance controls, having also breached US sanctions in Iran and Cuba between 2017 and 2019. It also took a £68m charge after scrapping old IT projects that it said were no longer part of its strategy.
Together, those costs pushed the lender to a pre-tax loss of £131m for 2019. It reported a profit of £40.6m a year earlier.
The new chief executive, Dan Frumkin, will now look to cut costs and has halved the number of new branches planned for the north of Englandover the next five years from 30 to 15. “Cost growth has outstripped revenue growth and this cannot continue,” Frumkin said.
Frumkin stressed he was not planning job cuts or branch closures in order to rein in costs. Instead, the bank is looking to scale back its rate of spending and shift some of its back office staff away from costly London buildings. Metro Bank employs around 2,100 branch staff and around 1,400 back office workers.
The investigations by the Financial Conduct Authority and Prudential Regulation Authority are expected to hang over Metro Bank for at least another year. Frumkin said: “I think it will honestly run through the year and I don’t know when it will be resolved. I think we’re planning for it to continue, we’re budgeting for it to continue.”
However, he expects that a potential penalty would be lower than £44m, which was the amount Citigroup was fined last year for failing to accurately report its finances to the regulator over four years. “They’re 15 [to] 20 times the size that we are. So the reality is that we had a single misstatement over a single period and we’re tiny,” Frumkin said.
The lender is also facing a class-action lawsuit in the US over the accounts blunder, but Frumkin did not disclose how much the case could cost.
Rumours have swirled over whether Metro Bank could be put up for sale or snapped up by opportunistic investors after its share price drop. Frumkin refused to confirm whether Metro had received any takeover offers but said: “There’s nobody actively marketing the place for sale.”
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