This company aims to get 'fans', not customers. Its corporate ethos is AMAZE(ING) - yes really - which stands for a number of value phrases, beginning with 'attend to every detail', and finishing with 'games change because this is a revolution'. [Not sure why 'exceed expectations' was worth the spelling mistake, but that is, perhaps, a typical journalist response.] Here is the skinny on the latest, and possibly weirdest, challenger bank.
An 'introduction', not a public sale
Metro Bank is currently raising funds from its existing investors, after which it will be 'introduced' to the market. Trading of the shares has been pushed back from late February until 7 March. Volatile markets have reportedly forced the lender to cut its share price from £24 to £20, netting it £400m rather than the previously hoped-for £500m. There might be another reason for the price cut, though.
It's rather expensive
A valuation as punchy as the two times book value that has been suggested looks pricey if you consider, as I did in this column a couple of weeks ago, the discount to book that fellow challenger bank CYBG has been given by the market. What can justify this premium, for a bank that made an underlying loss of £10.1m in the last three months of 2015? Metro's abbreviated accounts say optimistically: "[This] marks a return to the trend of declining quarterly losses." Costs are also rising fast. Operating expenses of £108m in 2014 were up 49 per cent on 2013.
...but there are reasons why
The bank has indeed been growing fast. The latest numbers on total deposits from its abbreviated accounts shows customer deposits grew 78 per cent over 2015 to £5bn, compared with 118 per cent growth in the previous year. Lending is also growing strongly, with loans to business and personal customers at £3.5bn at the end of 2015, a year-on-year rise of 122 per cent.
It's a retailer, not a bank*
*It's really a bank
That level of customer growth tells you something about the Metro Bank model - presenting itself as a growth retailer rather than a boring old lender. The bank has 40 glossy "stores", not branches, across London and the south east, with a further nine planned openings for 2015. If you walk past one, as I did in Cambridge recently, your eye may be caught by the 'Magic Money Machine'. This allows adults and kids to guess the value of their coins, with the chance to win a prize, as well as to donate a portion of their piggybank to charity. This stress on customer service has helped boost those customer numbers.
Don't ignore the balance sheet
My colleague at FT Alphaville Kadhim Shubber has written compellingly on the quirks of Metro Bank's balance sheet. As you'll have spotted in the above numbers, not all of the bank's deposits - which are liabilities owed to its customers - are backed by lending to other customers and businesses, which is how banks usually operate. The most recent figures from the 2014 annual report show about half of the £2.9bn deposits are covered by loans and advances to customers, with a further £1.6bn invested in the market. These are mostly "retail mortgage-backed securities and corporate and other bonds", the bank says. At the end of 2014, £1bn of these were rated AAA. Highly rated MBS, eh?
It's a tricky call
Which leaves us with two tough questions. Can Metro Bank make a sufficient margin without investing in higher-risk credit assets? Its net interest margin for FY2014 of 2.11 per cent holds up well against CYBG's 2.22 per cent, and we await full 2015 figures. But how will its balance sheet fare when interest rates rise and the credit cycle turns? We know all too well how things can go wrong. In all, the price cut should come as no surprise: this expensive operator looks like a one-way bet, which of course doesn't necessarily make it a bad one.
