Metro Bank: regulator brings challenger bank to heel

December penalties are turning into an annual tradition for mid-tier UK lender Metro Bank. Last year, the Prudential Regulation Authority handed out a £5.4mn fine for financial reporting failings. On Monday, the Financial Conduct Authority fined the bank £10mn for misleading investors, saying that it knew its disclosures were wrong.

The bank, known for welcoming dogs, was supposed to nip the heels of UK banking’s alpha animals. Instead it has spent the past three years licking self-inflicted injuries. Scandals aside, the business model has placed a counter-intuitive emphasis on branches.

Penalties might have been tougher. The FCA levied £360,000 on former chief executive Craig Donaldson and ex-chief financial officer David Arden. Given the seriousness of the case, which contributed to a nearly 40 per cent share price fall in January 2019, disqualification could have been on the cards.

Happily for Metro, the fine draws a line under the misreporting of risk-weighted assets just in time for rising rates. Net interest margin increased by 52 basis points year on year to 1.98 per cent in the third quarter. Its acquisition of peer-to-peer lender RateSetter has boosted consumer lending, which has yet to show signs of rising defaults.

Metro has failed to live up to its promise. Shares are down by almost 95 cent since it listed in 2016. Its CET1 ratio in the first half of 2022 was 10.6 per cent, well below NatWest’s 14.3 per cent.

Moreover, the rise of online-only banks makes the decision to focus on branches look as well calculated as its RWAs. It has half the customers of Monzo, which launched half a decade later.

Poor performance from mid-tier banks also reflects regulator failures to level the playing field on matters such as capital requirements. Metro trades at 0.2 times price to book, according to S&P Global. That is in the same ballpark as Virgin Money UK’s 0.4 times. Metro’s scandalous days are hopefully in the past. But its dog days are far from over.