Metro Bank shrugs off loans blunder to land £120m funding

METRO Bank has emerged as the biggest winner in the bidding war for funds stumped up by RBS to aid competition, even as the challenger bank faces growing unrest from shareholders over a major accounting blunder.

The challenger bank, whose investors include billionaire trader Steven Cohen and former New York mayor Michael Bloomberg, was awarded the largest share of funding at £120m.

Digital bank Starling won £100m, while clearing bank Clearbank took £60m in a joint bid with start-up Tide.

The giveaway is aimed at creating more banking options for the UK’S small businesses, which are reliant on banking giants Barclays, Lloyds, RBS and HSBC for most of their services.

The awards come from the £775m RBS Remedies fund, a cash pile carved out of the bank in exchange for its bailout during the financial crisis and its failure to spin off its subsidiary Williams & Glyn.

Metro Bank’s win comes as the FTSE 250 firm faces questions over loans that led to a £800m collapse in its share price last month. The bank admitted it had misclassified billions of pounds in commercial real estate and buy-to-let property loans, meaning its capital position was weaker than first thought.

Management was then left red-faced when it had to admit that the flaw in its accounts had been discovered by the Bank of England, despite previously insisting the error was spotted internally.

Shareholders have since contacted law firms including Stewarts Law, best known for its claimant actions against banks, to look into the matter. More established players TSB, Co-op Bank and CYBG missed out on the RBS funding awards.

The news surprised the City as analysts had expected CYBG to be in “pole position” for the cash. Its small business executive, Stephen O’keane, said last month the bank had spent millions of pounds and had 100 staff working on the process. CYBG shares fell 5pc.

Small business groups called on the banks to use the RBS money to develop ideas that would make the market more competitive. Mike Cherry, chairman of the Federation of Small Business, said the “sizeable sums” must not be “swallowed up by day-to-day operations”.

Metro Bank, which is known for its flashy branch openings featuring stilt walkers, face painting and waitresses handing out popcorn, said that the money would help it open new outlets and launch new digital offerings.

Starling pledged to use the cash to create 400 new jobs in the UK. It secured the funding a week after announcing it raised an additional £75m from investors. Chief executive Anne Boden, who wants the bank to increase its share of the business banking market to 6pc by 2023, said the deal “would accelerate our ability to reshape the SME banking market”.

Clearbank, the first new clearing bank for settling transactions and payments in the UK in 250 years, said the money would go towards helping accelerate the growth of Tide, which had joined its bid.

The Banking Competition Remedies board, which oversees how funds are split, said it received six bids for a share of the first pool of funding. Further grants will be awarded later this year.