Metro Bank slides as coronavirus inflicts heavy losses

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Metro Bank PLC (LON:MTRO) shares slumped on Wednesday as the high street bank saw its losses widen amid the effects of the coronavirus (COVID-19) pandemic.


In its results for the year ended December 31, the company reported an underlying pre-tax loss of GBP271.8mln, much wider than the GBP11.7mln loss reported in the prior year, despite 11% growth in deposits to GBP16.07bn and a 6% increase in assets to GBP22.6bn. Total underlying revenues, meanwhile, dropped 15% to GBP340.9mln.


READ: Metro Bank buys RateSetter back book at par value


The losses were driven primarily by an estimated GBP124mln charge from the effects of COVID-19, including GBP100mln in expenses from expected credit losses (ECL) as well as lower transaction fee incomes. Metro also reported an 18% decline in loans to GBP12.1bn.


Despite the much wider loss figure, the bank said its underlying loss in the second half of the year was half of that in the first amid what it said was an improvement in net interest margins and fee income as well as a “significantly lower” ECL charge.


Metro also highlighted rising customer numbers, with 2.2mln customer accounts at the end of the year compared with 2mln at the end of 2019, adding that its transformation plan remains on track despite the effects of the pandemic.


Meanwhile, the firm said its acquisition of the RateSetter platform will accelerate a rebalancing of its lending mix towards unsecured lending, while the disposal of its GBP3.1bn mortgage portfolio has removed the need to issue Minimum Required Eligible Liabilities (MREL) qualifying debt and has created “headroom for growth in higher-yielding assets”.


Looking ahead, Metro said it is aiming to accelerate unsecured lending and specialist mortgages as well as improve revenues through enhancements to customer positions including insurance, credit cards, small business loans and enhanced business overdrafts.


The company also said it is aiming to reach more customers through digital channels and further its range of specialist mortgage products, although it reiterated that the overall economic and market outlook for 2021 “remains uncertain”.


“It has been a truly unprecedented year for our business, colleagues and customers. Never has the role of a community bank been more important for people across the UK and I am incredibly proud of the way Metro Bank has continued to support and deliver for our customers,” chief executive Daniel Frumkin said in a statement.


“The pandemic has clearly impacted performance, leading to significant expected credit losses, but our transformation strategy is firmly on track and we have accelerated initiatives to shift our asset mix, bringing higher yield and improving net interest margin, as evidenced in the second half…2020 marked Metro Bank’s 10th anniversary and whilst challenging, the strategic actions we have taken, supported by our incredible team of dedicated colleagues, means we remain on track to achieve our transformation plan as the UK’s best community bank,” he added.


In a note, analysts at Liberum, which rate Metro Bank at ‘sell’ with a 94p target price, said the underlying loss figure was worse than their estimates and said that the bank is “not expected to be profitable for the foreseeable future”.


Shares in Metro Bank dropped 4.5% to 143.2p in early deals.

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