Metro Bank slumps after shareholder cash call, strategy overhaul

Metro Bank slumps after shareholder cash call, strategy overhaul
FILE PHOTO: A Metro Bank sign outside one of its branches in central London, July 28, 2010. REUTERS/Toby Melville/File Photo   -  Copyright  Toby Melville(Reuters)
By Reuters

(Reuters) – Shares in Britain’s Metro Bank tumbled 13 percent in early trading on Wednesday after it revealed plans for a 350 million pounds shareholder cash call, a month after an accounting error slashed its market value.

In an unscheduled statement on Tuesday, Metro, founded in 2010 to help to break up the dominance of Britain’s biggest banks, also told investors it would slow its expansion plans amid “challenging” market conditions, despite more than doubling its annual profits in 2018.

Shares were trading at 1134 pence at 0806 GMT.

The lender also disclosed that regulators at both the Financial Conduct Authority and Prudential Regulatory Authority intended to investigate the circumstances around the accounting blunder, which led to a massive increase in the volume of higher risk assets on its balance sheet.

Spooked investors fled the stock after the mistake was disclosed, triggering a fall in its market value from 2.1 billion pounds to as low as 1.4 billion pounds.

The shares have recovered since but fell again on Tuesday, closing nearly 16 percent down at 13 pounds.

The cash call overshadowed a boost in 2018 pretax profit to 40.6 million pounds, up from 18.7 million pounds in 2017.

However, both its net interest margin – a closely-watched measure of underlying profitability and its core capital ratio – showed weakness.

Analysts at KBW said the Metro Bank now faced more headwinds than tailwinds.

“While the update provided some favourable items we were hoping for, including a slowdown and re-mixing of the balance sheet, it fell short as it relates to the incremental capital plan including its return on equity aspirations,” KBW said.

Goodbody analysts said Metro’s update was more downbeat than anticipated, adding that short term trading in the stock “won’t be pretty”.

“If confidence falters and the rights issue looks like it won’t be supported, we believe that PE (private equity) could be waiting in the wings,” Goodbody said.

(Reporting by Noor Zainab Hussain in Bengaluru and Iain Withers in London, editing by Sinead Cruise)

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