Interactive Investor

Metro Bank makes £241 million loss as Covid hits

5th August 2020 16:01

Liz Bury from interactive investor

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The coronavirus outbreak has hit the challenger bank hard, but experts are positive about its future.

Metro Bank (LSE:MTRO) made a loss of £241 million in the first half of the year as the Covid-19 outbreak hit the company’s bottom line.

The bank made a £3.4 million profit in the same period of last year.

Metro Bank’s shares were down 7.54% to 106.05p by lunchtime today after unveiling its results.

The challenger bank’s first-half loss before tax of £240.6 million “principally reflects the impact of the pandemic,” says chief financial officer David Arden.

This figure includes £109 million of Covid-related costs and £17.8 million of loan reclassification charges.
 
The bank’s foreign exchange income fell and overall banking transaction volumes were also lower during lockdown.

Chief executive Daniel Frumkin says:

“These have been testing times but I'm very proud of the way Metro Bank has demonstrated the benefits of its community banking model, with our colleagues stepping up to support our customers and the local communities we serve.”

But Investec Securities called the loss “eye-watering” and says it reflects “extreme net interest margin compression, lower fees, higher operating costs, planned investment spend, a very material (primarily lockdown-related impairment charge) and other one-off items”.

But Metro’s results did have several positive points.

The first is a quarter-on-quarter increase in customer deposits, up 7% to £15.6 billion. Investec calls this “the one obvious positive”.

Metro Bank also added 84,000 new customer accounts and saw strong growth in retail and SME business deposits, helped by loans from the government’s Bounceback Loan Scheme to businesses.

Mortgages remained the largest part of Metro’s loan book, with £264 million of new lending in the period. But overall the retail mortgage book shrank by £240 million to £10.2 billion compared to the end of 2019.

Metro says this is due to “customer attrition and lower activity in the market”. 

Barclays Capital called Metro’s shares underweight, and says the bank is “seeing a challenging outlook for earnings and restructuring under Covid-19, although it enters a period of economic uncertainty from a position of capital strength”.

Interactive Investor contributor Edmond Jackson’s take, back in June, was ‘hold’, saying “while Covid-19 has damaged prospects, a sell rating assumes a worst-case UK economic scenario”.

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