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’

The Daily Telegraph - Business - - Front Page - By Lucy Burton

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.

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