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Metro Bank falls into loss, promises strategic review after tumultuous year

Metro Bank PLC CEO Craig Donaldson said the bank will undertake a strategy update to be unveiled along with its 2019-end results as it reported a third-quarter statutory net loss of £4.9 million.

Underlying profit before tax at Metro Bank in the nine months to Sept. 30 fell 71% year over year to £11.3 million from £39.2 million. The bank reported a reduction in its net interest margin to 1.99% compared with 2.07% in the second quarter and expected it to be broadly flat in the fourth quarter.

Presenting its results to analysts, Donaldson and CFO David Arden had to fend off queries over whether the bank was likely to be put up for sale when it unveiled the results of its strategic review in February 2020.

Arden said the bank had a strong and resilient business and was focused on organic growth. Donaldson, meanwhile, said the bank would concentrate on overhauling its strategy and, while any consideration of sale would be a matter for the board, he would not comment on speculation.

"We have to manage the business in a considered way over the next few months. We have to manage the business the right way to grow with the equity we have," said Donaldson.

'Business as usual'

Though there was deposit growth of £528 million in the third quarter, the bank saw net deposit outflows of £213 million in September after it postponed a debt issuance. The bank said it was "returning to business as usual," indicating there was still some way to go on the deposit situation, but Donaldson declined to comment on whether deposits at the bank were lower today than at the end of September reporting period, saying he refused to provide monthly updates.

"We would expect deposit growth to moderate in the fourth quarter. In third quarter it was [£500 million] and I would expect it to be something between £200 million to £250 million deposit growth in the fourth quarter," he said.

The bank has seen a 22% growth in retail customer deposits to £8.2 billion in the third quarter compared with the same quarter last year. However, deposits from commercial customers were down 26% to £5.9 billion. Loan growth was broadly flat at £14.9 billion at the end of September compared with £15 billion at the end of June.

Asked about the outlook for the loan book, Donaldson said: "I would expect the loan book to be pretty flat, I'm not sure it will contract."

The figures reflect the tumultuous year Metro Bank has suffered in 2019 after it admitted in February that it had miscategorized some of its commercial loans and the capital it needed to hold against them. The Financial Conduct Authority and the Bank of England are investigating the bank as a result.

Further loan sales

It had to raise new funds in May but postponed an attempt to issue bonds required for regulatory purposes in September through lack of take-up, before trying again when it succeeded in raising funds only through offering a 9.5% coupon for a £350 million debt issue.

"Postponing the MREL sale was not the best thing we have ever done," said Donaldson, referring to the bank's bail-in debt requirement.

Metro denied suggestions from analysts that the bank was told to issue the debt by the board no matter what the cost and said the board had concluded executing the deal as quickly as possible was in the best long-term interests of the bank.

Arden also said the bank did not rule out further loans sales after it sold a £521 million loan book in July. "Potential asset sales will be part of our evaluation," he said.

Metro's shares have fallen more than 92% over the year to close before results were released Oct. 23 at 193 pence per share — less than a tenth of its £20 IPO price.

The bank's co-founder Vernon Hill has stepped down with immediate effect, the bank said Oct. 23, weeks before his planned departure from the board.