Metro Bank will scale back its expansion plans and shift away from mortgage lending after a reporting error derailed its previous strategy and led to the departure of its chairman and chief executive last year.
Dan Frumkin, Metro’s recently appointed chief executive, said: “There is no doubt there is a steep hill to climb,” but insisted the bank could turn round its performance after it reported an even steeper full-year loss than expected.
“The core strategy is not the problem. Execution has been poor — we’ve not been driving revenues where we should, costs are too high, and we underinvested in certain areas,” he added.
Mr Frumkin, a restructuring specialist, was appointed Metro’s permanent chief executive last week, after taking over on an interim basis at the start of the year.
Metro Bank’s previous approach, built around rapidly expanding its branch network and lending in the highly competitive residential mortgage market, ran into problems after it emerged the lender had been miscategorising certain loans when calculating its capital requirements.
The bank had to raise £375m in new shares following the error, which is being investigated by the Financial Conduct Authority and Prudential Regulation Authority. On Wednesday Mr Frumkin said he was unsure how long the investigations would take, but predicted they “have got some time to run”.
Under its new plan, Metro said it would aim to grow deposits by less than 10 per cent a year until 2024, with a focus on cheap current accounts instead of chasing growth with generous savings offers. It will significantly cut back the pace of branch openings and change the size and style of some new locations to reduce costs.
In its lending business, the bank will shift focus towards more profitable products such as specialist mortgages, and small business and unsecured consumer loans.
Mr Frumkin said the restructuring would not require any mass job cuts, but the bank planned to relocate many of its back-office functions away from its expensive central London headquarters. He added that there would be further changes to the bank’s top team.
“Not everyone will be up for it . . . I would expect further changes over time, I’m not going to mince words,” he said.
The bank said it would target a return on tangible equity of above 8.5 per cent by 2024, but profitability in the short term would be held back by up to £300m in spending on the restructuring.
Metro’s new plan was announced as it confirmed it had fallen to a full-year loss in the aftermath of the reporting scandal. A net loss of £183m, compared with a profit of £27m in 2018, was worse than analysts had expected, in part due to a £68m writedown in the value of intangible assets such as IT projects that will not fit into its new plan.
Metro said it would return £50m out of a £120m prize it was controversially given last year as part of a fund to encourage growth in business banking. Metro had promised to spend an additional £2 of its own money for each £1 it received from the grant, which was included in a remedy package designed to make up for Royal Bank of Scotland’s bailout during the financial crisis.
Godfrey Cromwell, chairman of Banking Competition Remedies, the body that awarded the prize, said the “strategy responds to changing circumstances”, and that it was right for Metro to present a “revised proposal as the context evolved”.
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