Metro Bank shares plunge as growth slows

The FTSE 250 challenger bank said that was an increase of 138% year-on-year, but it was 16% short of the consensus forecasts for £58m. Underlying basic earnings per share were up 111% at 40p.

At 0932 GMT, shares in Metro Bank were down 28.79% at 1,568p.

On an unaudited basis, assets were 32% higher than 2017’s audited figure at £21.7bn, while loans grew 48% over the year to £14.2bn and deposits were ahead 34% at £15.7bn, although the rate of growth slowed from the prior quarter. Analysts expect £16bn for the full year.

The bank’s loan-to-deposit ratio was 91% at year-end, compared to 82% at the end of 2017.

The Metro Bank board said its trading in the fourth quarter continued the trends seen in the prior three quarters, led by more than 100,000 new customer accounts joining the bank.

During the year’s final quarter, it opened branches in Bath, Crawley, Northampton, Putney, Ashford, and Piccadilly, and neared completion at Moorgate, which eventually opened in early January. Metro Bank now boasted 66 stores from Canterbury in the East to Bristol in the West of England, with a further seven stores in “advanced planning stages” or under construction.

Deposit growth per store per month for 2018 was £5.9m, down from £6.3m year-on-year.

Metro Bank said risk-weighted assets at for the year were expected to balloon to around £8.9bn, with the increase driven by both net loan growth and an adjustment in the risk weighting of certain commercial loans secured on property and certain specialist buy-to-let loans to large portfolio landlords. Analysts said this suggested the bank was rectifying a mistake.

Total capital ratio was expected to be about 15.8% as at 31 December, a decline of 330 basis points.

“2018 was another strong year of growth for Metro Bank as we continued to invest in both new stores and digital capabilities to win customers, deposits, assets and to create FANS,” said chief executive officer Craig Donaldson. “Metro Bank remains well positioned to support our growth strategy as we navigate an uncertain period for the UK.”

But broker Goodbody said it was "a very negative statement", with the growth slowdowns a concern, particularly on deposits.

Analysts at Jefferies said the more price sensitive element of the statement was a surprise change in risk weighting on certain commercial real estate and specialist buy-to-let portfolios, adding that the update “poses more questions than answers - notably on capital planning”.

Olivetree Financial said the increase in risk-weighted assets was "huge" and the explanation of an adjustment in the risk-weighting of certain commercial loans and certain specialist BTL loans suggested "it seems they got their models wrong".

"They have avoided giving a CT1 number, which seems deliberate, but have given a total capital ratio of 15.8% which is -3.3% QoQ. We estimate the CT1 could be down around 13% (and were expecting ~14.5%). Given they are burning through ~75bp per Q underlying and have a 12% CT1 target, they could need to come back to the market again in 6m, unless they receive internal model approvals quickly (and even the benefits of that could be in doubt after today)."