Metro Bank shares tumble after revelation of loan error | Metro Bank

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Metro Bank has disclosed a major error in the way it classifies its loan portfolio, an admission that sent its share price plummeting nearly 40% on Wednesday, wiping £800m off the company’s value.

The bank, which opened new branches as established rivals scaled back business, revealed that hundreds of millions of pounds of commercial property loans and loans to buy-to-let business operators had been misclassified in terms of risk and should have been included among its “risk-weighted assets” (RWA).

After the error emerged, shares of Metro fell 39% from £22 to £13.45 as analysts feared the bank may need to raise new capital, just six months after appealing to the shareholders for £300 million to fund its rapid expansion plans. When a bank has higher risk-weighted assets, regulators require higher amounts of capital to be set aside.

Subway launched in 2010 and opened new banking halls in town centers across southern England. This IPO in March 2016 to £20 per share, which rose to over £40 per share in March last year but has been falling ever since.

Metro Bank Chief Executive Craig Donaldson said “credit quality remained strong” and that “despite RWAs, the bank continues to do well.”

The company said it had hired a ‘big four’ accounting firm to check the classification of the loans and immediately reported the issue to the Prudential Regulatory Authority, one of the successors to the Financial Services Authority. .

When Metro Bank reassessed its loan portfolios, it found that around a tenth of its £14.5bn loan portfolio had been given incorrect risk weightings.

He found that many commercial real estate loans were given a 50% risk weighting when they should have been 100%. The situation was worse in the commercial buy-to-let portfolio, where many loans were given a 35% risk weight when they should have been 100%.

The bank also revealed that tougher trading conditions meant underlying profit for 2018 was £50m, well below expectations of £59m but up 136% on the previous year. last year.

Mortgage margins have been hit by tougher competition in the sector and general uncertainty in the housing market in the face of Brexit, he said.

Metro insisted its growth plans remained on track, with Donaldson saying the market “shouldn’t assume” the bank would seek additional capital. Its total capital ratio fell from 19.1% to 15.8% after the loan reclassification, but Metro said it remained comfortably above the regulatory minimum of 12.6%.

He said in the fourth quarter he opened 100,000 new customer accounts. Six new branches took its total to 66 and further expansion in the West Midlands was planned for 2019.

Donaldson said: “Metro Bank remains well positioned to support our growth strategy as we navigate uncertain times for the UK.”

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