Metro faces struggle to keep hold of £120m growth fund

By Roger Baird on 25th March 2019

Challenger Banks

Regulator fears an accounting error at the start-up bank will hamper growth plans.

Metro faces struggle to keep hold of £120m growth fund
Image source: Metro Bank

Scandal-hit Metro Bank is at risk of losing its competition grant if it fails to stick to ambitious growth targets.

The start-up high street bank won £120m of funding from the Banking Competition Remedies (BCR) on 22 February, aimed at boosting lending to small businesses.

Metro’s award came on the same day digital bank Starling was granted £100m and online clearing house ClearBank picked up £60m from the competition body.

However, four days later Metro was forced to go cap in hand to investors to ask them for £350m to bolster the bank founded in 2010. The lender plans to raise this over the next three months.

The cash call came because a month earlier it revealed it had underestimated how much shock absorbing capital it was holding, and had to raise more. An error in this crucial part of a bank’s balance sheet is the difference between going bust or staying in business.

The FTSE 250 firm has lost 62 per cent of its market value since the error was revealed. It is the subject of regulatory investigations by both the Financial Conduct Authority and the Prudential Regulation Authority.

Metro the chief executive Craig Donaldson offered to resign over the matter. But the board, led by US chairman and founder Vernon Hill, refused to accept it.

Metro Bank had said in its submissions to the BCR it will open another 30 branches in the north of England by 2025, according to The Sunday Times. The lender currently has 66 sites.

Documents seen by the newspaper show that Metro plans to capture 8.3% of the business current account market — about 610,000 accounts — by 2025. Analysts estimate that it currently has a share of less than 1%, which has taken almost a decade to build.

Metro does not reveal the number of business current accounts it has, although our AltFi Insights analysis today pegged the bank at around 100,000 accounts.

However, since the cash call the lender has scaled back its plans. It now targets growth of 20 per cent rather than 30 per cent a year, and plans to open around eight branches a year.

BCR chairman Lord Cromwell wrote to Donaldson on 4 March and said that submissions to the body should “not be misleading”, adding that there must not any “material change” to a firm’s “business case” that had applied for funds.

Donaldson wrote back to Cromwell on 8 March and said the bank was “wholly committed to the activities contained in our bid and focused on ensuring we bring competition and choice to SMEs in the UK”.

Cromwell also recently told a Treasury Select Committee that the BCR had the power to clawback funds that it has granted.

In total the BCR administers a £775m fund to boost banking competition in the UK. The move is part of European Union conditions attached to the £45bn Government bailout of RBS at the height of the financial crisis a decade ago.

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Companies in this Article:

ClearBank
Metro Bank
RBS
Starling Bank

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