Metro Bank promoted its interim chief executive Dan Frumkin to permanent chief on Wednesday, as the retail lender prepared to outline its second attempted turnround plan in a year.
Mr Frumkin faced immediate pressure from investors and analysts to demonstrate a “decisive turn away” from the high-growth but high-cost strategy of his predecessors. They ran into problems after the discovery last year of a big reporting error that led to the departure of its chairman and chief executive.
Metro was forced into an emergency capital raising after the reporting error, which involved miscategorising large quantities of loans when calculating its capital requirements, leaving it with less capital to support further growth.
The bank slashed its targets for deposit growth and branch openings after discovering the error, and said it would rebalance its lending portfolio away from less profitable areas such as residential mortgages. However, since then investors have continued to question its approach and pushed for more radical changes.
One New York-based Metro bondholder said the “next big question” was whether the board has “taken a decisive turn away from the Vernon Hill strategy” — referring to the bank’s eccentric former chair, who once appointed his dog Sir Duffield II as the bank’s “chief canine officer”.
The bondholder added: “The board needs to prove that the new mascot for the bank isn’t the lapdog and they are willing and capable of making intelligent decisions, including selling the bank if needed.”
Mr Frumkin, who joined Metro as chief transformation officer last September, will outline his new strategy alongside the bank’s full-year results next week. On Wednesday he described the bank as “a business with robust foundations and real potential to shake up British banking,” despite its recent problems.
John Cronin, analyst at Goodbody, said: “The certainty that Metro’s strategy recalibration will be orchestrated by a CEO who is in the seat on a permanent basis will be greeted by investors — in stark contrast to the position at HSBC with Noel Quinn.”
Shares in Metro have fallen 85 per cent over the past 12 months, and are down 95 per cent from their 2018 peak. It is expected to remain unprofitable until at least 2021, in part due to the exceptionally high costs of a bond issued last October. The bank was initially unable to drum up enough investor support for the deal due to concerns about governance under Mr Hill, and was forced to offer a record-high coupon of 9.5 per cent.
Mr Frumkin joined Metro from Bermuda-based Butterfield Bank, which he helped to restructure in the wake of its rescue by private equity group Carlyle in 2010. He also served in senior restructuring roles at Latvian bank Parex and the UK’s Northern Rock, after they were taken over by their respective governments during the financial crisis.
Michael Snyder, Metro Bank interim chairman, said: “The combination of three decades of experience across retail banking and the positive impact he has made since joining Metro Bank last year mean we have identified an impressive CEO to take Metro Bank into its second decade.”
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