February 26, 2020 / 7:16 AM / a month ago

Britain's Metro Bank cuts back growth plans after plunge into the red

LONDON (Reuters) - Metro Bank (MTRO.L) shares tumbled on Wednesday after the bank plunged to a full-year loss of 131 million pounds ($170 million) and scaled back growth plans, capping a year dominated by an accounting scandal that forced its top bosses to quit.

FILE PHOTO: People walk past a Metro Bank in London, Britain, May 22, 2019. REUTERS/Hannah McKay/File Photo

The British company was set up a decade ago as one of a handful of banks aiming to challenge the dominance of Lloyds Banking Group (LLOY.L) and Royal Bank of Scotland (RBS.L), but investor faith in its costly business model has all-but evaporated.

Metro Bank’s deposits fell by 8% to 14.5 billion pounds in 2019 as an increase in cash from retail customers failed to offset almost 2.5 billion of withdrawals by business customers spooked by the accounting blunder that wiped nearly 90% off Metro’s market value last year.

Metro’s net interest margin- a key measure of profitability - fell to 1.51% from 1.81%, while underlying profits dropped from 50 million pounds to a loss of 11.7 million.

Metro shares fell as much as 18%.

“There’s no doubt there’s a steep hill to climb,” CEO Dan Frumkin told reporters.

Metro said it would halve the number of branches it plans to open in the north of England by 2025 from 30 to 15. It also said it would build less expensive branches in future.

Known for its glossy branch network and customer perks such as pet treats and weekend opening hours, Metro was the first bank to be granted a high street banking license in Britain in 150 years.

But the bank has been hit by regulatory missteps and legal problems. Last year, Metro said it had under-reported exposure to higher-risk loans by almost a billion pounds, triggering an regulatory investigation.

Craig Donaldson and Vernon Hill, the respective CEO and chairman in charge of the bank at the time of the error have since left the company.

“It would take the very bravest of bargain hunters to consider investing right now,” said Adam Vettese, analyst at investment platform eToro.

In recognition of the more modest growth plans, Metro said it would pay back 50 million pounds of an original 120 million pounds it was awarded last year in a contest designed by European Union and UK authorities to boost competition in business banking.

Frumkin said the bank’s board had considered paying back all the funds awarded by the Banking Competition Remedies (BCR) body, but had decided on a “middle ground”.

BCR Chairman Godfrey Cromwell said the bank had submitted revised commitments and was making progress.

Analysts have previously suggested Metro may have to sell all or part of its business to secure its future, but Frumkin said Metro could remain independent. “We’re here for the long term,” he said.

He declined to say whether the bank had been approached by potential buyers or had retained advisers for a potential sale.

“There is nobody actively marketing the place for sale,” he said.

(Graphic - Metro Bank plummets in value since 2019 accounting error: here)

Reporting by Iain Withers in London and Muvija M in Bengaluru, editing by Sinead Cruise and Jane Merriman

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