Vernon Hill is a man in a hurry. Just three weeks after announcing his intention to step down at the end of the year, the Metro Bank chairman has packed his bags and quit the post “with immediate effect”.
His sudden urgency is completely understandable. On Wednesday after the market close, Metro reported a third quarter statutory loss before tax of £6.7m, partly due to a large charge for “prudent balance sheet actions”. The challenger bank he founded with great fanfare (and dog bowls for thirsty canines) is a mess. There is an accounting scandal and a botched debt issue had to be revived at a far higher coupon. These problems have left regulators baying for blood and depositors pulling their funds.
Even without regulatory and governance snafus, Metro had problems. Its glitzy branch model was an expensive anachronism not long after it launched, rendered obsolete by digital players such as Monzo with their jazzy pink cards and less-fuss banking.
Banks make money by borrowing low and lending high. Even the best in class are finding that tricky in today’s climate. Metro, alas, is not best in class. Its net interest margins have shrunk steadily, from 1.97 per cent in fiscal 2016 to 1.81 per cent last year and 1.62 per cent at the interim stage.
Metro ponied up an eye-watering 9.5 per cent coupon for a £350m debt issue designed to meet loss-absorbing buffers required under Bank of England regulations.
That gives it the necessary capital, but does not leave much room for balance sheet growth. Sure, it could sell off loans — Barclays reckons on £1.7bn of non-core loans, or 10 per cent of the total book at the second quarter — but the corollary would be less earnings.
Ultimately, Metro illustrates the trouble for challengers everywhere. By definition, they push the envelope. That draws the attention of regulators, even without Metro’s eccentricities. Metro shares now trade at one twentieth of their £40.40 peak and a tenth of the £20 IPO price. Alas, Mr Hill’s departure is far from enough to turn this dog round.
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