Needsanaccountant
Metro Bank… needs an accountant
Metro Bank struck a deal in October to raise extra funds from investors that it said will secure its future amid a rising cost base
Metro Bank’s share price plunged at the beginning of October following reports suggesting the bank needed to raise cash to shore up its finances.
In fact, the Bank of England is said to have asked larger lenders if they were interested in buying Metro, while banks were said to be eyeing up some of its assets.
But on Sunday 8 October, Metro Bank said it had raised £325m in new funding, as well as refinancing £600m of debt.
Under the deal, Colombian billionaire Jaime Gilinski Bacal will become its biggest shareholder with a 53% stake. His firm, Spaldy Investments, will put £102m into the bank.
Metro’s chief executive, Daniel Frumkin, said the deal marked “a new chapter” for the lender.
The challenger bank — which currently has 76 branches across England and Wales, and plans to open 11 more across the north of England in 2024 and 2025 — has faced a number of challenges in recent years after an accounting scandal in 2019, which led to some top executives, including founder Vernon Hill, leaving the company.
That scandal centred on mis-stated mortgages, in which it gave incorrect risk weightings for large numbers of its loans and meant it did not have enough capital to cover itself against potential losses. At the time, the bank had to raise £375m in new shares following the error.
What would an AAT member do?
- Reduce costs and and find efficiencies to reduce pressure on the balance sheet.
- Be strict about revenue recognition in accounts, to prevent an over-representation of money owed that has not yet been received
More recently, Metro Bank had asked City watchdogs for permission to use its own ratings system to value its mortgages and its assets, which would have freed up cash so it could invest in its business and grow
But regulators turned down the request in September, saying that they wanted the bank to use an external rating system.
Simon Samuels, a former managing director at Barclays and Citi, told the BBC’s Today programme that while the financing bought Metro Bank some time, it did not address the “fundamental challenges” of the bank’s strategy of focusing on high street branches which was “very expensive”.
Samuels added Metro Bank has an “unsustainable cost base” and, as a result, may end up as part of a larger group in the long run.
For its part, Metro Bank has stated its finances remain strong and it continues to meet its regulatory requirements.
However, there are several lessons to draw from Metro Bank’s recent issues, primarily around managing costs and identifying paths to growth. With a sizeable bricks-and-mortar cost base that is expected to grow, the bank has to explore new options for generating revenue, such as possible sales of some mortgage books.
