Metro Bank was forced over the weekend to reassure customers about its financial health following what it described as fake rumours on social media.
Shares in the bank have lost three-quarters of their value since it revealed a major accounting error in January.
Why is Metro Bank in the headlines?
The bank, which has 1.7 million customers and 67 branches in London and the south-east, is dealing with the fallout from an accounting blunder, which is being investigated by two financial regulators. It had an “awful” first quarter when profits halved to £4.3m and a small number of large business customers left.
The Prudential Regulation Authority spotted the error which meant a large chunk of commercial property loans and loans to commercial buy-to-let operators had been wrongly classified as lower risk. Banks have to set aside more capital for riskier products, to ensure they can survive in a sudden downturn. Metro Bank says it is “well capitalised” and has an adequate financial cushion to cope with the error.
What is Metro bank telling customers?
Metro Bank has reassured customers that it is on a strong financial footing. Its first quarter results this month showed the bank is still profitable and gained 97,000 new customers over the period. The lender reiterated on Monday that plans to raise £350m from existing and new shareholders to boost growth – it denies a link with the accounting error – are “well advanced”. That said, markets are not impressed that it needs to raise yet more cash, after tapping shareholders for £300m last July to fund its rapid expansion plans.
Why are some people withdrawing money?
The bank said people were queuing up at five or six branches in west London over the weekend, after messages circulated on WhatsApp advising customers to withdraw money and empty their safety deposit boxes. The vast majority of people were reassured, it said, and did not pull their cash out. It also pointed out that it does not take ownership of the contents of safety deposit boxes, such as jewellery – they always remain the customer’s property.
What protections are there in place for Metro Bank customers?
For customers who have their current account with Metro Bank, up to £85,000 is protected under the Financial Services Compensation Scheme. Some small businesses and charities may also be protected. The Financial Services Compensation Scheme assesses eligibility on a case-by-case basis.
What is Metro Bank doing to address its problems?
The bank is expected to unveil details of the £350m share placing this week and plans to complete it by the end of June. Some of the money will be used to finance further branch openings, in Manchester and Liverpool. The firm is also considering selling a chunk of the commercial loans at the centre of the accounting miscalculation.
If it manages to raise more money and sort out the fallout from the accounting blunder, Metro will be on a stronger footing.
Russ Mould, investment director at AJ Bell, said: “Assuming it raises £350m later this week, Metro Bank will then have to prove to the market and its customers that the business is robust and capable of growing without needing regular capital injections and also without a repeat of the recent accounting error.”
Metro Bank was set up in the aftermath of the financial crisis in 2010 by the US entrepreneur Vernon Hill, when public trust in the established banks was at a low, and has become one of the main challenger banks in the UK.
The Guardian
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