A Metro Bank branch
(Picture: PA)No one can say Dan Frumkin has an easy job.
The Metro Bank CEO was parachuted in to help rescue the challenger bank in 2019 after a major accounting cock-up that saw it classify loans as much less risky than they in fact were. Frumkin, a turnaround specialist, insisted he had a plan. Then came the pandemic. Lockdowns were bad for a business like Metro that has lots of branches.
Annual results today show that, hopefully, the worst is over: losses are down by a fifth despite restructuring costs, fines and a provision for the accounting blunder. The earnings margin and cost of deposits are both improving and underlying losses are shrinking.
But contrast Metro with Barclays, which also has numbers out today: the Big Four lender enjoyed a record profit in 2021, with margins more than one percentage point higher than Metro. It has announced a £1 billion buyback and a healthy dividend. How can Metro compete with that?
Frumkin says they are very different beasts but when Metro first came to the market it promised better customer service than the High Street giants like Barclays. It pitched itself as a growth stock to investors used to dwindling earnings at banks suffering from low interest rates.
That no longer holds water. Metro has lost more than 90% of its value since the accounting issues emerged and rising interest rates provide a fair wind to rivals.
If it wasn’t for partnerships, Metro’s retail deposits would be falling. It’s getting harder to claim it’s the friend to downtrodden customers.
For now, Frumkin is focused on stabilising the bank — losses are still greater than revenues. He insists it can be a growth business again in the not too distant future.
But the dream of challenging the banking oligopoly looks increasingly distant. A sale or takeover could be the next step.
Private equity firm Carlyle had a look in November but talks didn’t go far. Others may find value.
A deal with a big bank would be an ignominious end to a lender that wanted to shake up the market. Lets hope it doesn’t come to that.
