Metro Bank wary over house prices as losses hit £241m
Lender booked M People’s singer to celebrate its 10th anniversary, but if it is really set on Moving On Up it must dig much deeper ‘Metro’s results were a blizzard of bad news, all going in the wrong direction’
METRO Bank has suffered a huge loss as it prepares for a slump in house prices and surging unemployment.
The high street lender – which is fighting to revive its fortunes following a loans scandal last year – fell £241m into the red for the six months to June, down from a £3.4m profit a year earlier.
Metro bosses were forced to set aside £112m to cover the expected costs of loans going sour as legions of crisishit families and businesses find it impossible to pay back what they owe.
Its economists expect property prices to drop 14.6pc this year and 4.9pc the next before staging a recovery, with unemployment climbing as high as 8.4pc. Shares in the bank fell 6.7pc to close at 107p yesterday, valuing Metro at £185m – less than its half-year loss. Investors have suffered a 95pc stock crash since the bank’s 2016 float, when it was valued at £1.6bn and bosses hoped to enter the FTSE 100 within three years.
Daniel Frumkin, the chief executive, is trying to turn the lender around after a furore when Metro was forced to admit it had miscalculated the riskiness of some property loans.
The scandal led to the exits of its founder Vernon Hill and Craig Donaldson, its boss at the time. Regulators are still investigating the loans error.
Metro Bank marked its 10th anniversary last week with a video starring M People’s Heather Small. The singer gamely belted out the hits – Moving On Up chiming nicely with the bank’s aspirations – from the echoey interior of the mostly deserted Holborn branch, intercut with dancing staff members. Such giddiness from bank employees has not been seen since the heyday of “Howard” in the Halifax adverts. Not the most edifying spectacle for Small, but in her defence, with live music venues closed, you have to take the work where you can get it.
During much of the last decade, it seemed as if Metro Bank was making a good fist of its fight against the big players. The bank, which floated in 2016, caught the eye with its glitzy, dog-friendly branches. Then, a little over 18 months ago, the lender admitted it had miscalculated the riskiness of some of its assets. The share price cratered and its chief executive departed, closely followed by founder and chairman Vernon Hill.
Now newish boss Daniel Frumkin has to steer his bank through the worst economic downturn in living memory. At least Hill and wife Shirley were invited back for a cameo in the valedictory video, the latter proclaiming: “We must never lose the magic, but make it stronger.”
Well, she’s not wrong. Metro gave clues to its bright new ideas earlier this week, with the acquisition of peer-to-peer lender Ratesetter. Metro wants to move more into personal unsecured loans and Ratesetter is a means of doing this. Metro also sees value in the technology Ratesetter provides.
Unfortunately Metro’s half-year results were a blizzard of bad news, with seemingly all of the numbers going in the wrong direction. There was the £112m provision for bad loans, pushing it to what one analyst called an “eye-watering” £241m pre-tax loss. Its net interest margin, a key measure of profitability, sank to 1.15pc, and its capital buffer ratio shrank too. Customer deposits have risen by 8pc since December, but that is happening across the board, with people choosing to stash money away rather than spend.
Metro isn’t giving any guidance about when it will make a profit. Analysts at Goodbody note the bank is “particularly susceptible to the performance of the UK economy”; it’s not a great time to be hitching your cart to that horse. Despite the rising risk of customers defaulting, Frumkin is bullish on the move into unsecured lending, insisting the bank will know how to spot the good prospects from the bad.
Although he is slowing the pace of branch openings, now the bank has hit 77, Frumkin sees them as a key strength. Metro’s branches are spacious, making it slightly easier to manage social distancing; from these, it can sell more products to its “fans”, with Frumkin hinting at partnerships to allow a move into insurance and credit cards. But this all depends on footfall holding up – currently Metro puts it at around 70pc to 80pc of pre-Covid levels. It also relies on the UK economy not getting any worse.
Otherwise Frumkin’s plan to chase organic growth may founder, and he will need bolder ideas to achieve the scale that Metro needs. The bank may have to become a buyer again, or get itself match fit as a takeover target – Colombian billionaire Jaime Gilinski Bacal, its largest shareholder, has been tipped as one interested party. Then perhaps it can truly move on up.
William Hill bets on a shift to online
The sweeping closure of retail outlets at the start of lockdown was a boon to online operators, so the logic goes. Bookies should be partly insulated by their huge online arms – except, with sporting events cancelled, there were no bets to place unless you fancied a flutter on Belarussian soccer.
Thus William Hill yesterday reported an 8pc decline in online revenue in the UK in the first half. Coupled with the 13-week closure of shops, this lopped nearly one third off its turnover. The return of horse racing and football could not come quickly enough. Now boss Ulrik Bengtsson has “pruned” a further 119 shops, not so long after Hill closed down 700. He says the 1,414 sites it has left will be future-proofed against footfall that will struggle to return to pre-Covid levels.
Like Metro, William Hill is moving to a world of “showrooming”, where its stores are portals to a deeper virtual offering, with staff helping punters get online and upsell them (or “unlock revenue”, if you prefer). In the bookie’s case, its shops could also end up being high street billboards for a brand that is being steadily beaten back from the advertising space. Indeed, Bengtsson notes the UK is in a “very uncertain regulatory situation”.
The nascent US sports betting market is the great hope. Hill already has a leading 29pc share thanks to its partnership with Eldorado, which is soon to merge with Caesars. Moreover, around 39pc of Hill’s revenue came from outside the UK compared to 35pc a year ago, so it is heading in the right direction.
All told the bookie is in a better position than some expected a few years ago, as a 9pc share price bounce suggests. But Hill won’t be taking flight from these shores just yet. Like the rest of us, it will be keeping a close eye on the British consumer, on whose willingness to loosen the purse strings our immediate future seems to depend.