Beleaguered UK lender, Metro Bank, struck a rescue deal late on Sunday to refinance £600m of debt from its balance sheet and is currently in discussions about selling £3bn from its mortgage book.
The challenger bank launched in 2010 in the wake of the global financial crisis, using a business model that allowed it to flourish in an environment where bigger banks were struggling due to bad loans and high costs.
However, the bank’s success has been dwindling since 2019 after two scandals saw its reputation plummet and it was fined heavily by financial regulators.
Here, we take a look at the timeline of events that led to Metro’s current situation and what the future might hold for the troubled high-street bank.
METRO BANK CRISIS TIMELINE:
January 2019: Metro Bank admits classifying a portfolio of £900m worth of loans incorrectly.
May 2019: In a separate scandal, the bank severs links with the architecture firm owned by Shirley Hill, the wife of its chairman and founder, Vernon Hill, after criticism concerning £25m worth of payments made by the lender to the firm.
October 2019: Hill resigns in the wake of the controversy surrounding his wife’s business. The bank raises £350m by selling off shares – funds it needs to cover the regulatory capital requirements it had failed to meet on the portfolio of £900m in loans.
December 2022: Metro Bank is fined £10m by the UK’s Financial Conduct Authority after it ruled the bank breached Listing Rules by publishing incorrect information to investors. Former Chief Executive Craig Donaldson and former Chief Financial Officer David Arden are also fined £223,100 and £134,600 respectively.
March 2023: The bank publishes its quarterly figures which show it increased provisions for loan defaults by 75% in 2022 as the cost of living crisis put pressure on the ability of consumers to repay debts. It also announces it has resolved an investigation by US regulators into possible sanctions breaches in the handling of money from Iran and Cuba, without financial penalty.
September 2023: After working with the UK’s Prudential Regulation Authority to develop its own internal model for calculating capital requirements to protect against mortgage risks, the bank’s request to use the model (meaning it would be required to hold less risk capital) is denied by regulators. The news sees Metro’s share price drop by eight per cent.
October 5th 2023: The bank’s shares plummet by 30% when news breaks of the lender’s plans to ask investors for a cash injection of hundreds of millions of pounds to shore up its balance sheet. The bank insists it is not in serious financial trouble and is operating as normal.
October 8th 2023: A rescue deal, involving £600m of debt financing and £325m of raised capital, is agreed. It also announces plans to sell off £3bn of mortgages from its balance sheet by year end and change its focus to “specialist mortgages and commercial lending,” whilst continuing its strategy of opening more high street branches.
The bank also confirms it has seen a “recent increase in deposit outflow rates” as worries about the financial health of the firm spooks current account holders.
Metro Bank’s strategy is not viable, says ex-chairman and co-founder
Despite recent events, Metro is aiming to continue with its plans to open 11 new physical branches in the north of England by 2025. Analysts have criticised the plans, saying that branches are not cost effective and go against the clear trend towards online banking.
Anthony Thomson, Metro Bank’s co-founder and chairman from 2010 to 2012, told the BBC that the bank’s plans to focus on growing its network of high street branches was a “flawed strategy,” and would result in a “limited future,” for the firm.
Cost-cutting drive
Metro Bank confirmed on Monday it would be implementing a fresh set of cost-cutting measures with the aim of saving the bank £30m a year from 2025. Finer details of the plans, including whether it would involve job cuts, have not been released.
Could Metro Bank’s problems cause contagion in the wider industry?
Analysts suggest that – for the time being at least – Metro Bank’s issues are unlikely to cause contagion in the wider industry. This is because its business model of growing its high-street presence, and the regulatory issues it has faced in recent years, are unique to the bank.
