At first glance the Metro Bank FY2019 numbers are as bad as forecast. The market agrees with an 8% drop in the Metro Bank share price to £1.77 on release of the results. In the past year the share price is down by over 85%.
And so Metro Bank will refocus its lending strategy and pare back its plans to grow its footprint in the north of England.
In addition, the bank will consider selling part of its loan-book.
Meantime, Metro Bank will return £50m of the original £120m it was awarded last year by Banking Competition Remedies.
Metro Bank FY2019 highlights
Let us dispose of the highlights first of all as they will not long detain us.
Customer numbers rise by 25% in fiscal 2019 to 2 million. Metro Bank ends 2019 with 74 stores. In 2019, retail deposits rise by 33% to £6.9bn but on the other hand, total deposits dip by 8% to £14.5bn.
Net fee and other income rises by 43% to £90.4m and that is about it other than one crucial metric. Customer service: Metro Bank quite rightly flags up its excellent showing in the most recent CMA survey.
In particular, Metro Bank ranks first for store service, online and mobile banking services. And that is despite the backdrop of 12 months of at times horrendous press coverage.
Metro Bank FY2019 less positive metrics
The bank posts an underlying loss before tax of £11.7m (2018: £50.0m profit).
On a statutory basis, the loss is £130.8m before tax, primarily reflecting a £68m write-down of intangible assets.
Bluntly, the bank’s expenses are too high and that is now being addressed.
And then there is margin pressure. Specifically, the bank’s net interest margin falls by a whopping 30 basis points to 1.51% in fiscal 2019. As a result, net interest income declines by 7% to £308.1m.
On liabilities, commercial customers excluding SMEs deposits are down by 51% to £2.5bn.
At the same time, the bank’s cost of deposits rises by 17 basis points during 2019 to 78 bps.
Metro Bank FY2019 looking ahead
Dan Frumkin, CEO, Metro Bank says that Metro Bank will deliver a statutory RoTE of more than 8.5% by 2024.
New stores will become more cost efficient and flexible in size, fit-out and leasing terms. Meantime, Frumkin says that it is not economic to close any of its existing stores. But there will be less new store openings.
For example, Metro Bank will now open only 15 new stores in the North of England and not 30 as planned.
Metro Bank remains committed to its target of a market share of about 6% of business current accounts by 2025.
And here it has work to do. For example, new business accounts cannot be opened online.
On deposits, the focus for growth will be on low cost current accounts.
Says Frumkin: “We need to be more Metro Bank”, and so the focus now will be very much on execution. Frumkin is likely to enjoy a short honeymoon period but has done well to retain the majority of the BCR funds.
He adds: “We’ve fully evaluated our strategy. We have a clear plan which will return the bank to sustainable growth built around a community banking model. An enhanced focus on costs, improved productivity, and investment in our infrastructure will enable our deposit-led franchise to deliver profitable growth over the medium term.”