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Metro Bank posts £245m loss due to regulatory settlement

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Written by: Shekina Tuahene
23/02/2022
Metro Bank has reported a loss before tax of £245.1m for 2021 mainly due to regulatory fines.

The bank’s remediation costs amounted to £45.9m, including a £5.4m settlement paid to the Prudential Regulation Authority after an investigation found Metro failed to act with due skill, care and diligence in relation to its regulatory reporting. 

A further £5.3m has been set aside for an investigation by the Financial Conduct Authority relating to the incorrect risk weighting of loans. 

Its losses also include three branch closures and the acquisition of peer-to-peer lender Ratesetter in February last year, which resulted in costs of £24.7m. 

The bank said this was offset partially by the sale of its mortgage portfolio which generated £8.1m in revenue. 

Metro’s results also come a week after its chief financial officer David Arden announced his resignation after four years at the bank. He will step down on 1 April.

On the route to profitability

Metro’s financial results for 2021 compares to a loss before tax of £311.4m in 2020. Chief executive Daniel Frumkin said he understood the bank’s losses needed to be “minimised swiftly”, adding he was confident its strategy would achieve that. 

A softening of its losses was further evident in the reduction of its underlying loss before tax of 37% annually to £171.3m, and losses in the second half of the year shrinking by 44% compared to the first half. 

Its underlying revenue also improved, with a 17% increase to £397.9m. Metro attributed this to its shift towards higher yielding assets, lower cost of deposits and a recovery in customer activity. 

This rose to a 42% improvement in underlying revenue when adjusted for the disposal of its mortgage portfolio. 

The bank said this highlighted its “momentum towards profitability.” 

Mortgage performance 

Metro’s gross mortgage lending totalled £6.72bn in 2021, down 2% on £6.89bn the previous year. 

Retail mortgages accounted for 54% of its lending book, a slight reduction on the 56% share it had in 2020. The bank said its mortgage applicants benefitted from enhancements to the existing mortgage offering and the launch of further specialist products during the year. 

It expects to see a higher rate of growth in overall lending this year as the bank plans to expand into existing sectors such as unsecured loans and specialist mortgages. It will also launch products such as automotive finance and digital lending products for SMEs. 

Its net interest margin (NIM) of 1.40% is an increase of 18 base points in the year which it said reflected an improved lending mix and lower cost of deposits. In Q4, the NIM was 1.56%.   

Frumkin said: “Two years into the turnaround, our strategy is delivering meaningful results as we move towards profitability. In a changing macro-economic environment, we have accelerated the shift of our balance sheet, with improved yields and lower cost of deposits.   

“Encouragingly, the second half of the year delivered even stronger revenue and exit-NIM performances, providing ongoing momentum into 2022. There is still more to do, but our focus on delivering higher margins through unsecured and specialist mortgage lending, as well as tight cost control, is enabling transformational change. We remain committed to delivering on the strategy we set out, including supporting the communities in which we operate.” 

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