After a reporting scandal, panicked queues of customers, a growing backlash against senior management and an emergency capital raise, one might have expected Metro Bank’s (MTRO) annual meeting to be a testy affair. In the event, Tuesday’s summit reportedly wrapped up in 18 minutes, with no questions asked of the board.
In the process, a largely US-based shareholder base threw its weight behind founder and chairman Vernon Hill for the second time in a week. A week earlier those backers, alongside some new institutional investors, Mr Hill, chief executive Craig Donaldson and other board members agreed to cough up £375m in a sharply discounted equity placing at 500p a share.
>Reassured by the cash injection, investors have pushed the shares back up to 706p
The sale – which will be used to boost Metro’s capital position, grow loan balances and risk-weighted assets, and invest in branch openings and new technologies – has put to rest imminent fears of a hole in the bank's capital buffers brought on by its misreporting of £900m-worth of loans. It has also arrested a crisis in market confidence that saw the lender’s shares drop more than three-quarters in less than four months, amplified by news of first-quarter deposit declines.
On a pro-forma basis, the fundraising pushes Metro’s common equity tier one capital ratio to 15.6 per cent, five percentage points above its minimum regulatory level. Reassured by the cash injection, investors have pushed the shares back up to 706p.
However, major questions remain over the bank’s strategy and corporate governance. A sign that some investor trust has been lost was marked by the 28 per cent of votes cast against the re-election of longstanding non-executive directors Stuart Bernau and Gene Lockhart, whose respective oversight of the bank’s risk and audit committees failed to identify the incorrect risk-weighting of certain commercial and buy-to-let property mortgages.
Higher-profile protests were more muted, although, including abstentions, only 73 per cent of shareholders voted for the re-election of Mr Hill.
The bank’s latest prospectus also reveals a litany of issues. Investigations into the capital issues discovered in January have led to the freezing of share options and awards for senior leadership, and could yet saddle the bank with criminal liability, financial penalties, compensation payments and civil litigation. The bank’s own cost of borrowing, some of which is expected later this year, is likely to rise “potentially significantly”. By Metro's own admission, expansion plans have been revised down several times, and yet have still left the lender with a projected cost-to-income ratio of 90 per cent this year, and branches that can only boast a “mid-single-digit” average return on equity after six years.
