After Shares Collapse, Mini Bank-Run Begins as UK Lender Counts Cost of Broken Trust

This time it’s about the safe deposit boxes at Metro Bank.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Shares in Metro Bank, until recently the UK’s fastest growing high street lender, slumped 11% on Monday to £4.75, the lowest level since the bank went public back in 2016. Metro’s shares have lost almost three-quarters of their value since January, when the lender first revealed it was seeking to raise fresh capital following a very costly accounting blunder. They have now collapsed by 84% from March last year.

The latest rout comes on the heels of news over the weekend that hundreds of customers asked to withdraw money and items from safe deposit boxes after a series of warnings on Whatsapp. On Saturday, queues formed at a number of Metro Bank branches in London, photographs of which were duly posted and shared on social media, sparking fears that a mini bank run was under way.

“We’re aware there were increased queries in some stores about safe deposit boxes following false rumours about Metro Bank on social media & messaging apps,” Metro Bank said in a statement. “There is no truth to these rumours and we want to reassure our customers that there is no reason to be concerned… We’re a profitable bank, rated no.1 for personal current account service by the CMA and committed to serving our 1.7 million customer accounts.”

To allay customer fears, Metro said that the contents of safety deposit boxes, including cash and jewelry, are the customer’s sole property and as such cannot be confiscated. As for customers with a current account at the bank, up to £85,000 are insured under the Financial Services Compensation Scheme. The vast majority of people were reassured, the bank says, and did not remove their case.

But the same cannot not be said of some important business clients, whose funds would not be fully insured if the bank went bankrupt. After Metro was caught assigning the wrong risk weighting to a huge chunk of property loans, the bank has lost key clients. The “error” left a gaping £900 million hole on the bank’s balance sheet which, when disclosed in late January, prompted the bank’s shares to cascade almost 40% in just one day’s trading — the worst one-day fall suffered by any British lender since the financial crisis.

Metro faces a shareholder lawsuit over the accounting error and is under investigation by the Prudential Regulation Authority (PRA), the institution that first flagged up Metro Bank’s accountancy error, and the Financial Conduct Authority (FCA). It is also preparing a £350 million rights issue, after already raising £303 million from investors last July.

But investors — led perhaps by well-connected investors — have been smelling a rat since March 2018, as we pointed out, because that’s when the shares started to spiral down, from around £40 in March 2018, having now lost about 84% of their value in a little over a year.

Following the latest rout, Metro is worth just £462 million, down from £4 billion a year and a half ago. It is also the most shorted company on the UK stock exchange, with 13% of its shares out on loan to short selling funds. On Friday, Metro Bank’s biggest shareholder, Fidelity, slashed its stake from 7.6% to 5.4% after the bank had reported a 50% slump in first-quarter profits, as well as the exit of some of its biggest corporate clients.

Metro Bank is one of a handful of so-called “Challenger Banks” — small retail lenders created after the crisis to provide a little more banking competition in a country where the five biggest lenders control a staggering 85% of the market. After opening for business nine years ago, becoming Britain’s first new high street bank in over 100 years, Metro proved adept at luring disillusioned customers from the bigger banks.

Part of its appeal is its focus on physical branches — or “stores” as the company calls them — while most large banks are frantically closing theirs. Metro, like its U.S. forerunner Commerce Bancorp, is also open seven days a week, and has longer working hours than other high street banks. Drawn by the promise of more personalized customer service, over 100,000 new customers switched to the lender in the fourth quarter of 2018 alone.

But since January the tide has turned as the bank counts the cost of breaking the hard-earned trust of customers and investors. In the first quarter of 2019, Metro Bank lost 4% of its deposit base following the closure of a number of big corporate accounts. Now, doubts are emerging as to whether or not it will be able to come up with the £350 million of fresh capital it needs to cover its newfound risks.

The bank says the new funding will be in place by the end of June. A consortium of banks has already agreed to underwrite the deal, it claims. But with the share price crumbling to ever lower lows, fears are growing that any new capital will have to be raised at a huge discount that would severely dilute the holdings of existing shareholders, whose shares already lost 84% of their value in the last 12 months. Banking is all about trust. Once the bank breaks that trust, it can get costly in a hurry. By Don Quijones.

“Zombie firms,” kept alive by low interest rates, account for up to 14% of UK companies. Read…   Businesses in “Critical Distress,” Bankruptcies Surge in the UK

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  29 comments for “After Shares Collapse, Mini Bank-Run Begins as UK Lender Counts Cost of Broken Trust

  1. HR01
    May 14, 2019 at 1:08 am

    Don,

    Thanks for the continued reporting on this story.

    Is no one mentioning ‘contagion’ in reporting this or have the Brits outlawed the usage of that term?

    • May 14, 2019 at 2:57 am

      HR01,

      Metro Bank is too small to pose any kind of systemic risk even if it does go down, but its accounting blunder should serve as a timely reminder that when it comes to bank balance sheets, what you see is not always what you get.

      In the case of Metro Bank, regulators were quick to identify and pounce on the bank’s accounting flaw. But whether they would do the same (i.e. publicly naming and shaming the institution) for a much larger bank with a much larger systemic footprint is far from clear.

      • d
        May 14, 2019 at 5:10 am

        Also this run was seemingly the result of a fake-new’s/False-flag operation on whatsapp.

        The entire assassinate the new competition operation, being run against Metro, stink’s.

    • HowNow
      May 14, 2019 at 8:55 pm

      Yes, thanks, Don, for the very informative article. Gives us perspective…

  2. Dimmed Aurum
    May 14, 2019 at 2:38 am

    Why would anyone of sound finances (saver) ever need a bank, if a transaction institution for payment making, cash depositing/withdrawing suffices? In principle, large deposits in a bank should not exist, because if one is rich enough he/she ought be smart enough not to lend to an institution that would lend on (create money the bank`s way) to people/companies that are dumber than the original lender. The super wealthy or the long term savers should seek either controlling shares in profitable companies or other productive assets or gold or income producing real estate (revenue – expenses – taxes =+ ) or wealth in general – meaning something of use value/ pleasure value. The laid-back option of course is gold where anything from an income stream, beyond expenses should be parked.

    • twinky twonka
      May 15, 2019 at 12:45 pm

      As someone who has been absolutely hammered by uk savings interest rate i’d love to move my money (100k +) elsewhere but with everything from houses to shares being manipulated to record highs, what can a person do to assure that they don’t get wiped out should there be a correction.

  3. Jessy S
    May 14, 2019 at 2:39 am

    Personally, given the nature of this report, it seems to me that the big guys are trying to force Metro to fail. The accounting situation seems to be a false flag operation designed to cause problems and then the media spreads rumors while propping up the big guys. At least the negative press against Deutsche Bank and Wells Fargo is warranted in the states.

  4. Nicko2
    May 14, 2019 at 6:15 am

    Sounds like a failed business model. Who needs to physically go to a bank anymore? The only time I use a teller is if I have to take out a large amount of cash. Everything else can be done by telephone/internet banking.

    • 2banana
      May 14, 2019 at 6:21 am

      Notary, cashiers checks, cashing checks over a certain amount, safe deposit boxes, bank wires, opening a new account, etc.

      • nicko2
        May 14, 2019 at 8:52 am

        Notary, I’d use a lawyer. Cash cheques? No one writes cheques any more. Bank wire? ..can usually be done online. New account, all online. Most branches also have advanced ATM machines that handle bill payment, cash deposits ect… smartphone banking apps are also becoming more sophisticated. — ie. Mobile cash-free banking.

    • NDD
      May 14, 2019 at 6:31 am

      Metro Bank was founded by the guy who ran Commerce Bank of New Jersey, a hugely successful bank with the same model, that was ultimately acquired by TD Bank. He owned several Burger King franchises in the 1960s, and his insight was to bring the fast food customer service model to banking.

      Commerce Bank was hugely successful, but ran afoul of the SEC. if I recall correctly, it was because the guy’s family owned the land on which all the branches were built. I wonder if Metro Bank’s problems have a similar origin?

      Btw, the guy has since founded another regional bank in the Philadelphia region. Like Commerce Bank, it is growing like gangbusters.

      • Javert Chip
        May 14, 2019 at 3:20 pm

        What’s wrong with his family owning the land on which the branches were built?

        Might be understandable if it was insider self-dealing in which the bank over-paid for land, but that’s not what’s stated here.

        • NDD
          May 14, 2019 at 5:40 pm

          I think it may have been that the leases were never disclosed to investors.

    • Brant Lee
      May 14, 2019 at 5:03 pm

      Yeah, no kidding. I don’t make a trip to a bank but maybe twice a year. I grab cash at a retail outlet. As for my safe deposit box, hmmm, maybe I should check it more often.

  5. 2banana
    May 14, 2019 at 6:18 am

    It is a good point to ponder.

    Anything you store in a safe deposit box is only accessible when the bank is open.

    Additionally, socialists will be more than happy to inspect this “horde” of wealth and take what is needed for the children…when the time comes.

    https://internationalman.com/articles/say-goodbye-to-your-safe-deposit-box/

    • nicko2
      May 14, 2019 at 8:56 am

      Cyprus is an offshore haven…. But note, not all offshore havens are created equal. ie. You’d never have to worry about something like that happening in the channel islands.

  6. Iamafan
    May 14, 2019 at 6:20 am

    Just how many banks does the UK need?
    I don’t mean the City of London.

    • Briny
      May 14, 2019 at 8:38 am

      People in the UK are moving to the larger towns and cities just to have an ATM, not just a branch, according to reports I’ve seen around and about.

      • Steve Clayton
        May 15, 2019 at 11:56 am

        Hi Briny, ATMs wont be here in the UK in 10 years. It’s all going to be card payments for everything. The older generation still like the use of cash. As for branches there’ll be a lot less than there currently are, online banking has killed them. Regards Steve, UK.

    • MD
      May 14, 2019 at 11:27 am

      Be fair – someone’s got to provide the finance to the payday lenders!

      The UK’s main business now is debt – eactly the same as the USA and many other countries, in fact.

      That is what deregulation of the finance sector has delivered us – fake, ephemeral prosperity predicated on usurious lending, and the financiers’ jackboot on our neck.

  7. MD
    May 14, 2019 at 11:25 am

    It wasn’t a very costly accounting blunder in January, because it wasn’t an accounting blunder at all.

    In a carbon copy of events of a decade ago, this ‘challenger’ bank (ironically of the kind which was meant to deliver us from the malfeasance of the hubristic ‘too big to fails’) deliberately mis-allocated risk, to side-step capital reserve requirements.

    Meet the new boss, same as the old boss…

  8. May 14, 2019 at 11:44 am

    I am going to get a safe deposit bank in the UK, because all the guarantees he made are entirely untrue in the US, and are disclosed as such.

    • Albert
      May 14, 2019 at 12:03 pm

      Buy gold.

      • May 14, 2019 at 3:54 pm

        And keep it in the safe deposit box…

        • Brant Lee
          May 14, 2019 at 5:08 pm

          Put some fake sewer pipes in your garage and hide the gold. Don’t hook in the toilet during next remodel.

    • Javert Chip
      May 14, 2019 at 3:32 pm

      I searched unsuccessfully on the net to learn which UK safety deposit box guarantees are different than US safety Deposit box guarantees.

      Which ones are you referring to that are significantly different?

  9. Curious
    May 14, 2019 at 4:04 pm

    I’m more than a bit surprised that what this “accounting blunder” or “mistake” is has not been disclosed. When a British bank, listed on the London Stock Exchange and included in the FTSE 250 Index, makes an unexplained accounting boo boo, I worry. Their banks are comparatively much more conservative than the U.S., more heavily watched and regulated, and obviously more audited. So what happened?

  10. Brant Lee
    May 14, 2019 at 5:12 pm

    And the great stock market crash of 2019 was caused by….Social Media!

Comments are closed.