Metro Bank responds badly to Frumkin plan

A new chief executive has set out his strategy to revive the lender, but the shares plunged 19%.

Attempts by Metro Bank (LSE:MTRO) to draw a line under a disastrous 2019 failed to convince investors today as shares in the former high-flying mid-cap tumbled to another record low.

The 18% slide at the worst point of the session to just 155p compares with the £40 Metro shares were changing hands during the peak of the bank's high street powers in 2018.

The loss of its status as one of the London market's hottest stocks has been spectacular, with Metro the worst performing of all mid-caps in 2019 following a decline of 88%.

This was triggered by January 2019's revelation of a major accounting error where some commercial loans on its balance sheet were wrongly classified in risk terms. Some £2 billion of deposits were withdrawn over the first six months of 2019, while the year ended with the departures of Vernon Hill and Craig Donaldson as chairman and CEO respectively.

Source: TradingView Past performance is not a guide to future performance

After announcing full-year losses of £130.8 million, new chief executive Dan Frumkin today set out his plan for reviving the lender's fortunes. At its heart is a desire to make Metro the UK's “best community bank”, with an increased focus on the requirements of individuals and small business from its 74 outlets and online operation.

This will be accompanied by back office efficiencies and a step back in Metro's expansion ambitions, with the number of new branches planned for the north of England set to be 15 rather than the 30 previously hoped.

The current product offering will be enhanced and broadened with the aim of driving revenues and improving a net interest margin (NIM) that fell to 1.51% in 2019 from 1.81% the previous year. This fall was in part the consequence of actions taken by Metro last year to maintain a resilient balance sheet, including through a £521 million loan portfolio disposal.

Frumkin's overall aim is to achieve a return on equity of more than 8.5% by 2024, although with expansion plans being scaled back there was little appetite among investors this morning to back what might be a long and challenging turnaround.

They may also have been unsettled by continued uncertainty as UK regulators continue their investigations into the accounting errors revealed at the start of 2019.

Shares did attract some bargain hunters as the session wore on, but at 176p they were still 8% lower than at the opening bell. One possibility for bombed-out investors is that Metro attracts bid interest at the current price.

Frumkin pointed out that the company's balance sheet was now in much better health, with a stronger capital ratio of 15.1% compared with 13.1% at the end of 2018.

Customer deposits also recovered in the second half of the year, with a 6% improvement in the second half taking the figure for 2019 to £14.5 billion — a fall of 8% overall. Customer account numbers topped 2 million in the year, following a rise of 385,000 in 2019.