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Has Metro Bank Gone to the Dogs?

By Matthew Dove

Following its chairman’s dressing down at a court hearing involving a pet insurance company, Metro bank also appears to be making somewhat of a dog’s dinner of its accounts!

The challenger’s worth sagged by roughly 50% after the disclosure in January that it had made an astronomic accounting error. Metro’s value fell from £2.1 billion to as low as £1.1 billion and it now faces a huge sell-off to plug the void. Having made a modest recovery in recent weeks, Metro Bank is currently valued at £1.5 billion. Up to half the entire company looks set to go in what will surely rate as one of the most embarrassing corporate whoopsies of 2019 (ed.- the year is young!).

The news comes hot on the heels of chairman Vernon Hill’s run in with a Delaware judge during a wrongful dismissal case brought against him by the Co-CEO’s of Fetch, an online pet insurance company whose board Hill chairs. Hill was told by Judge Kathleen McCormick to “calm down” after quibbling over small details and making sarcastic remarks. Perhaps, Mr Hill had his mind on troubles closer to home…

The toe-curling mistake was exposed after a review of the bank’s risk-weighted assets (RWAs) which highlighted a sharp rise in exposure to higher-risk mortgages.

Metro now hopes to raise £350 million in a shareholder cash call underwritten by RBC Capital Markets, Jefferies and KBW. This means that the investment banks are on the hook should the equity raise fail to hit its target.

The toe-curling mistake was exposed after a review of the bank’s risk-weighted assets (RWAs) which highlighted a sharp rise in exposure to higher-risk mortgages.

Furthermore, both the FCA and Prudential Regulatory Authority (PRA) have made it clear that investigations concerning the original accounting blunder are pending.

CEO Craig Donaldson has also been forced to issue a weighty mea culpa;

“We’ve learned significantly from this chastening experience…we did not deliver the standards in this area that we and others should expect of us, and the buck stops with me, and I am sorry about that.”

Dog days indeed…

So contrite is Mr Donaldson that he’s giving up an annual bonus worth somewhere in the region of £800,000 and, rumour has it, he even offered to resign!

“We’ve learned significantly from this chastening experience…we did not deliver the standards in this area that we and others should expect of us, and the buck stops with me, and I am sorry about that.” – craig donaldson

Throwing the proverbial canine a bone, however, is Ian McKenna of the Finance & Technology Research Centre who feels that all is not lost;

“Firstly, I think it is good to see that even though Metro Bank missed this one the regulator, as I understand it, picked it up. That shows that the process is working. As a Metro Bank customer, I wasn’t actually that concerned about this. Unless I’m dealing with a “too big to fail“ bank I would never hold more funds with a single institution than are covered by the compensation scheme anyway.

Personally, I’m more concerned about alleged failings in anti-money laundering processes in other challenger banks than this issue.

While there may be some teething problems, as long as the regulators are on the ball, and this situation suggests they are, it’s a really positive thing to have so many challenger banks operating in the UK. This is clearly forcing established players to up their game to the advantage of consumers.”

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