Shares in troubled British lender Metro Bank plunged by almost a fifth on Thursday after it said customers had pulled £2 billion (€2.24 billion) out of the bank this year following a major accounting error in January.
The bank, which muscled on to Britain’s high streets in 2010, also posted an 84 per cent fall in half-year profit on Wednesday and said its founder Vernon Hill would stand down as chairman.
Metro Bank has struggled to rebuild investor confidence after disclosing in January it had under-reported the risk of its loan book by nearly £1 billion, sending its shares into a tailspin that wiped more than £1.5 billion off its market value.
The error forced the bank to raise £375 million from shareholders in May to shore up its capital base, prompting the Bank of England to say the lender was robust and fuelling a short-lived stock rally.
However another quarter of poor numbers released after market close on Wednesday sent its shares plummeting to new lows on Thursday.
Shares fell as much as 19 per cent before paring back some of their losses.
Metro blamed the steep fall in half-year profits, to £3.4 million from £20.8 million a year earlier, on “transformation and remediation programmes” to cut costs and address the loan book error.
The bank’s net interest margin – a closely watched measure of underlying profitability – fell to 1.62 per cent from 1.85 per cent the previous year.
Concerned
Goodbody analyst John Cronin said investors would be concerned by the pressure on profitability.
“We believe that the optimal ‘end game’ is for Metro to be sold to a third party,” he said.
Metro’s stock has been volatile since the error in part because a number of hedge funds had placed bets that its performance would deteriorate.
Three funds had short positions equating to more than 0.5 per cent of Metro stock at the end of Tuesday, the level at which the British markets regulator demands disclosure.
Short bets involve paying to borrow the shares before selling them on to another investor, hoping to buy them back at a lower price before returning the stock to the original owner.
Odey Asset Management’s was the largest position, at 3.10 per cent. FIS Astec Analytics data rates Metro Bank a 10/10 on its “borrowing activity rating”, signalling its shares are very expensive to short and also scarce.
Chairman search
Metro Bank said that founder Vernon Hill would stay as chairman until a successor was appointed, after which he would remain as a non-executive director and president.
Mr Hill survived two threatened shareholder rebellions over his chairmanship after institutional investors raised concerns about his lack of independence and questioned payments made to his wife’s architecture firm, which the bank later said would be phased out.
Metro Bank is also facing scrutiny from regulators investigating responsibility for the January loan book error.
Chief executive Craig Donaldson told Reuters on Wednesday Mr Hill's decision to step down as chairman was his own and not prompted by regulatory intervention.
“We’ve made the regulators aware of the announcement today, but it was Vernon’s decision,” he said.
Turned a corner
The bank gave no further update on the regulatory probes.
Mr Donaldson said he believed the bank had turned a corner despite another set of poor numbers, with deposits returning to net growth in the last eight weeks of the period.
The bank’s loan book grew by a quarter year-on-year, while fee income was up 61 per cent.
“What happened in May was where the line was drawn,” he said. – Reuters
