Metro quizzed over £120m grant

Lender forced to deny it misled banking authorities

SCANDAL-HIT lender Metro Bank last night faced questions over whether it had omitted key facts when seeking a £120m grant.

It was awarded the money by banking authorities to boost lending to British business.

But the lender is under fresh scrutiny over how it secured the grant following an accounting blunder.

It is just the latest setback for Metro and its founder Vernon hill ( pictured) after the mistake in the way it assessed the risk of some loans sent its share price tumbling.

Metro is now the second most-shorted firm on the London Stock exchange, as investors bet its shares have further to fall. They are down 61pc since the accounting error was made public on January 23.

Despite the blunder, Metro bosses were summoned to a crunch meeting with Banking Competition Remedies (BCR) on February 6 to discuss a possible grant. BCR was set up to hand money out to small lenders so they could take on the established players in business banking.

After reassuring the BCR that all was well and that the accounting error would not have a major impact, Metro got £120m on February 22 to spend on rapid growth and more branches. But it then announced on February 26 it needed to ask shareholders for £350m to bolster its finances, sparking fears for its plans and sending shares crashing again.

The same day, Metro revealed that the Prudential Regulation Authority ( PRA) and Financial Conduct Authority (FCA) were investigating the error.

Neither of these developments had been mentioned to BCR. Just days later, BCR head Lord Godfrey Cromwell wrote to Metro Bank chief executive Craig Donaldson to ‘draw attention’ to his pledge to provide ‘true, accurate and complete’ information that was ‘not misleading’.

Metro insisted it did not deliberately keep any details secret.

The bank has already come under pressure to hand the money back, and the latest revelations will add to pressure on Donaldson.

Labour MP John Mann, a member of the Treasury Select Committee, said: ‘This shows Metro has serious questions to answer over whether it is being honest with the authorities and the public. If Metro is found to have misled the BCR, then it should be forced to give the money back.’

Cromwell has written to Donaldson for an explanation. he said: ‘Your team advised that £1.4bn had been raised and that more “will be raised in the next two years” and this was already in your plan. You have now announced raising £ 350m of equity capital. Please advise us as to when the timing of this capital raising was decided.’ Cromwell also asked when Metro had been told by the regulators of plans to investigate.

Donaldson said that no decision had been taken on when to raise extra capital at the time that he met the BCR. he said: ‘The possibility of further equity capital was certainly in our plans.’

he said he first found out about regulators’ plans to investigate Metro on February 26, adding: ‘Please let me assure you that when we met on February 6, I was unaware of the PRA’s or FCA’s intention to investigate.’

The exchange of letters was revealed in a note from Cromwell to Nicky Morgan, chairman of the Treasury Select Committee.

he told Morgan that the BCR can claw back money from banks if they do not deliver on their promises. Sources close to the BCR said it was satisfied with the responses from Metro. Meanwhile, Metro sources insisted the bank has done nothing wrong.