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TGTD
You seem to misunderstand much of what i am saying. Assuming you are writing in good faith, i will take the time to address the points
a) I do not deny that it has been put out there that Coventry are willing to pay £800m for Co-Op. I am saying they would be ill advised to pay >80% of tangible book for a business that was at peak profitability last year (this year's PBT at Co-op is £60m lower than last) and whose franchise is in decline. My point is that if Coventry is wanting to buy a current account franchise, paying less than half what it is offering for Co-op for Metro should be a no brainer. Why aren't they doing it? Because Metro's management team have failed to produce a credible value case, and because of their mismanagement the bank is perceived by most in the market as a basket case
2) Galinski's actual track record is based on turning around the largest (previously) publicly owned bank in Colombia. Impressive though that is, taking a poorly performing bank in a developing market and using it as a consolidation vehicle to strip out costs is a very different prospect to building a successful challenger bank in arguably the worlds most competitive banking market. Particularly when consolidating current account platforms in the UK has been the rock on which many mid-sized banks and consolidation cases have foundered. Its not impossible, but would have been more impressed if the cost cutting felt well considered and tackled the additional costs that Frumkin has put on in recent years. Instead its the core revenue drivers of Ratesetter and branch based deposits that have faced teh chop. The strategy of his incompetent farm boy CEO seems to be to switch into higher risk commercial lending (which he has been rolling off since 2019) funded by deposits costing above base rates (cannibalising all the low cost deposits that the model was built to bring in). Its stupid banking 101. If Galinski had any real nouse his first action would have been to replace the management team. But what he has instead allowed is for the CEO to fire the second sacrificial scapegoat CFO in three years t omask his own incompetence, thereby staying loyal to the man who enabled him to buy in at 30p when a month before it would have cost £1.30p
3) The £16m loss is an issue because it was a £16m profit at the half year. So it is as i said a £10m a month loss for the last quarter. I agree that is before the cost reduction kicks in. But even if revenue stayed flat, the cost reduction doesn't fully cover that £10m a month. And the revenue line was £25m lower in H2 than H1 because of the deposits issue which will atleast persist at current levels if not get worse. The CEO himself admits that they are going to lose money in 2024. He just hasn't been transparent on how much.
Chatbox1
'the Co-operative Bank, which had been offered £270m by Cerberus in 2020, could now reportedly fetch upwards of £800m if it were to be sold.'
htTps://www.theguardian.com/business/2023/dec/21/co-operative-bank-in-merger-talks-with-coventry-building-society
Sky News if I recall quoted similar valuations.
SDB revenues are in fact an important point as this covers 80% of property leases costs and possibly higher as Metro Bank acquired outright some London prime sites during the Covid period.
"I am not sure i have the energy to unpick your points about Galinski's strategy"
It's perfectly rational to understand his strategy and background in financial services with turnaround strategies often targeted at cost cutting and operational improvements. From there you see his view on the 'value' proposition that Metro Bank offers and likely exit strategy, cost reduction, rebuild share price, gradually lowering his share holdings as market confidence recovers, and sell Metro Bank on 2 to 3 years for a multiple of his current average share price of 70p.
If Metro Bank can operate at a cost base of £450m while revenues are currently are £546m isn't that an underlying profit of £96m that you are suggesting?
The current loss £16m versus prior year loss is modest it was just that the market expected a small profit of £11m rather a small loss but given last years tirmoil I wasn't surprised, and the £30m statutory profit should have been the key highlight...
The market focused on the small underlying loss only and not the wider picture that despite last years refinancing, subsequent share dilution, the turn around strategy continues and is being both expanded ambitiously and accelerated in its delivery. Which is exactly the right course of action to take.
One could equally argue that challenger banks face an unfair regulatory environment shackled with not being able to utilise their own internal risk weighting models for capital allocation while the big four banks can and do enjoy an unfair competitive advantage.
In fact last year's crisis was imho driven directly by the Bank of England preventing Metro Bank moving to its own capital allocation model and reducing capital buffers in line with its much larger rivals meaning it wasn't therefore able to free up further capital, lend more, and strengthen its balance sheet, through generating more profits, which in turn created a mini market panic, all avoidable in my opinion.
"Most must have come to the conclusion that you cant just asset strip this business (because of the unexitable costs associated with running a branch based current account business)."
Well Gilinksi doesn't think so and nor did the previous bidders otherwise why bother engaging with Metro Bank in a bid process if it wasn't feasible to grow margins through reducing the cost base.
I'm not sure if I can follow your other points they seem to be random outbursts aimed at denigrating the Board.
The safety deposit box point is a complete red herring. Its worth less than £20m of revenue. When the s, the branches had not had time not build a deposit base so had very little other annuity income and the overall cost base was less than £200m it was a very meaningful part of the story. Now Frumkin has grown the cost base to £530m, while shrinking the balance sheet, much less so.
I am not sure i have the energy to unpick your points about Galinski's strategy. All i will say is that clearly every serious PE business as well as other mid-sized banks have been having a look at Metro and had the opportunity to take the business out at or around 30p (i bet the regulator would have taken the arm off any of teh big 5 willing to take the bank on for free). Most must have come to the conclusion that you cant just asset strip this business (because of the unexitable costs associated with running a branch based current account business). The only value comes from the fact that Metro was the only mid-sized branch based bank able to grow low cost deposits. That is what Shawbrook were interested in. Galinski is trying, with this slash and burn, to present a picture of the bank as one which still has a successful core franchise, which can operate at a cost base of less then £450m. But i doubt people will buy that. He is killing teh core business so what you end up with is infact, a bank even more discredited than the co-op of 5 years ago that is much less profitable (Co-p is worth nowhere near £800m BTW but Coventry may be the type of Bluebird buyer we wish the Metro management team had the capability to unearth, but they cant tie their own shoelaces let alone present a credible sales pitch to the market.)
M3Leki
Operating 7 days a week is too expensive a business model and no doubt there has been some decline in SDB revenues, but then again your branch closed so couldn't have been viable to remain openveven with SDB revenues.
Both Virgin Money and The Co-operative Bank are profitable and operate a similar size bank branch and digital model to Metro Bank. Cooperative Bank 50, Metro 76, Virgin Money 91 branches.
Hence it appears that Metro Banks cost base is not aligned to the mid sized bank sector industry average and needs rescoping..job cuts, branch closure of unprofitable branches, and automation of bank back office processes.
Hence the initial £50m savings to be delivered in Q1 and a further £30m this year.
If you caste your mind back The Co-operative Bank was more or less written off given the issues it faced but now valued at £800m, is profitable, and in merger talks with Coventry Building Society havingvrejected several other suitors. The Co-operative Bank now makes £477m revenues with an underlying profit of £120m versus Metro Banks £546m revenues and underlying loss of £16m yet Metro Bank has double the customers of the Co-operative Bank at 2.7m versus 1.4m. While Virgin Money has 6.6m customers, revenues £3.6b and underlying profits of £900m but has more branches than Metro Bank.
There in lies the key issue Metro Banks cost base is out of kilter with its rivals and needs realignment and thats fundamentally why it is currently loss making.
Realign the cost base, profits follow, capital adequacy improves, balance sheet strengthens, and share price re-rates.
Gilinksi has a strong financial services background in cost cutting turn around strategies and no doubt saw the opportunity both to cut costs butvalso the growing M&A activity in the UK mid sized bank industry where there is strong competition. Seeing Metro Banks popular brand name and popularity amongst customers added to his analysis.
Cost cutting and right sizing of any business takes time, upfront one off costs to deal with, followed by the year on year savings to follow..I see Metro Bank as a clear turn around opportunity, which will remain listed, and no doubtvsikd off in 2 to 3 years to a bigger bank player.
@2good
Your analysis on the SDB is outdated. They were covering the lease costs but not anymore. People took all their items out and people no longer use the SDB to the extent of a year ago.
Branch opening hours has removed the USP and for people to only view their items mon-fri 9-5 is not as appealing as 7 days a week and up to 8pm.
I worked at the Earl’s Court branch and that was paying for itself and was a free advertising due to being on the A road. Not anymore and that branch has now been closed.
You need to re-think your analysis.
Chatbot2
I notice in your analysis you haven't taken account that Metro Bank is a well known brand name and popular with customers.
That the branch lease costs are 80% covered by security box rentals while sone prime site locations are owned outright.
That Metro Bank has 2.7m customers, The Co-operative Bank 3.1m, and Virgin Money 6.6m all operate a branch structure as well as a digital offering. Note: The Co-operarive Bank has been valued at £800m in its merger talks with Coventry Building Society.
Metro Banks cost structure needs to be brought down and into line with the mid size bank sector. Achieve that and the issues you raise regarding profitability and capital erosion fade away..making Metro Bank an interesting take over target.
Hence the core issue that Gilinksi is addressing is getting the banks cost structure right sized and it seems that's what he is focused on achieving.
Cyberpuppy
"Oh wait though, all these savings that we know are coming will substantially affect the share price, again lol. If it was going to it would have already, and as we've seen this week, surpassing market "expectations", again laughable because the "market" was proactive investors lol,"
The mgt team can claim whatever future savings they like, but delivering them is another matter, if delivered by Q2 and reflected by trading updates then the share price will react positively on the news based on the next set of financials.
Hence your argument that future savings are already 'baked' into the current share price is 'groundless'. .
Metro Bank made a small £11m operational loss and much of which was driven by the refinancing costs and upheaval in October last year. A 67% improvement on prior year I note.
Going forward it's on far sounder ground and with £80m of potential future savings flowing to the bottom line in the coming months the share price is more than likely to gradually recover if not sharply re-rate upwards.
Chatbot2
Connectivity issues as advised earlier.
What happened to 'Chatbox1' did that get banned?
Errr- and i was referring to your illiteracy- but it would appear your sense of irony is as acute as your investment acumen!
Chatbot2
I was referring to you regarding gobbledegook.
Agree a great point made!
TGTD
"also attending yesterday's Results Meeting have to say sine of the nonsense he's spouting is plain gobbledegook gook alot of effort for little return share price diwn slightly, but relatively low volatility."
A great point well made
Share price moved just 2% in 5 days and shorters are panicking nevermind time to close thise positions I would suggest far more upside than downside here.
Tuan2
Hi Dori. Hope you are well and enjoying being in the board of daddy's bank. If you need any help with your written English or principles of corporate finance let me know.
It won't react as when it happens because that's already baked in, unfortunately sentiment is shot to pieces, and sentiment always over rides results
Marabou
Agree the market will react as and when the savings crystallise in the form on the next trading updates. There are no guarantees on both timing and amount while the share price has remained relatively stable.
Hi chaps decided to inves t and i can see if intrest rates stay as they are or even drop 1% by the rnd of the year , Metro will be back in profit and should see a up in sp price . ill keep ploughing mone y in here and wait a couple of years i can see 100p sp in 2026
Some laugh this chat re takeover code, shareholder protection etc. Laughable again to even try and suggest small shareholders are protected. Oh wait though, all these savings that we know are coming will substantially affect the share price, again lol. If it was going to it would have already, and as we've seen this week, surpassing market "expectations", again laughable because the "market" was proactive investors lol, will not make any difference to metro SP. Friday fun if nothing else from some on this chat, because time and time and time again, WRONG
Chatbot2
You really need to move on and close that short position.
If anyone checks your profile they will see that you recently joined and all posts are negative on Metro Bank.
Same as Cyberpuppy well not quite at least you don't have over 550+ posts since 2021 for over 3 years all negative and only posted on one BB, Metro Bank, lol!
Apologies connectivity issue affecting typos...but you get the gist!
Agree than he's here just trying to decamp Metro Bank privablybanxious over his short position imploding.
I also attending yesterday's Results Meeting have to say sine of the nonsense he's spouting is plain gobbledegook gook alot of effort for little return share price diwn slightly, but relatively low volatility.
Clearly he can't distinguish between a Bank of England intervention versus a shareholder using their majority holding to force through a take out at below 30p...The first scenario occurred and is unlikely to reoccur while the second conflicts with current Conpany Law and minority share holder protection.
Maybe he thinks Gilinksi will phone tge Bank of England to ask them to put pressure on institutional investors to sell out to him sub 30p
As for his capital calculations plain bizarre, capital buffers restored, £80m cost reductions feed through to profits. Underlying loss £1+m versus statutory profit £3m mainly one off refi cost c.£2m as reported.
Deposits up, lending marginally down, other all given last October's turbulence much better than many of us would though would be the case. A £11m loss 67% below prior year is very easy to turn to a profit given the penciled on cost reductions.
What is your points when you only post negative on Mtro share and try to tell people for? As nobody interested in any your lost and if someone followed what people said in here so if they lose their money that is their mistake. There is nothing free lunch and drump and pump post like your only support your owe agenda.
The second more interesting point regards the need for capital. Firstly should note the assumption re profitability i referenced the numbers Frumkin alluded to yesterday- i,e. a loss in 2024, low single digit ROE in 2025 (which with CET1 at less than £1b probably means at best £20m profit) and then meaningful profits from 2026. So its not me saying that even with cost reduction the business does not generate meaningful organic capital. That is the guidance from the bank. The point you then make, is that the bank wont need that capital as long as the cost reduction atleast limits the losses. That is a reasonable assumption. Even if you use my maths, of £30m loss in Q1 followed by a £15m loss in each quarter thereafter, you get to a £75m loss for 2024, which wouldn't take Tier1 below the 10.8% requirement. But that would imply no additional RWA growth, which is not commensurate with the strategy of redeploying assets into RWA dense, higher risk lending. And it also implies that a) the bank can stem the bleeding that was happening in low cost deposits even before October, despite the fact that the business model for bringing them in was all about service and convenience- a model they have now taken a hatchet to; and b) the business can credible "pivot" to high risk lending and not mess it up. Given as i said ratesetter was the big play there last time(and now they are closing it), and that commercial carries a huge exposure to a deteriorating credit environment under IFRS 9- witness the provisions in 2020- you really are taking a risk on a strategy being executed by this management team. Given that in the last 4 years the bank have burnt through 40% of the £600m of core equity they inherited, and have yet to print an underlying profit despite base rates going up from 0.1% to 5.25%; and they have had to revise every single projection they have ever made, including the guidance they gave in November, then that is some punt...
TGTD- two points re your response. Firstly, as noted the recapitalisation was indeed a "vote" with a gun to the head- the chairman's letter essentially said, vote yes or we go into resolution. While there is less of a "gun" this time, essentially there is a 75% controlling interest across Galinski and the cabal that were able to buy in at 30p too (and so have the same incentives as him going forwards). No one outside that group, institutional or otherwise, has any power to stop anything they want to push through. Which is why such things are typically not allowed under the takeover code, and why this is unfortunately not a business you can invest in and expect the retail shareholders interests to be considered- doesn't mean you can't take a punt riding on Galinski's coattails, but you do have to consider if your interests are aligned...
Why this share so cheap compared with other Bank with the same revenue ? Is this big debt or trouble in finance to run the bank at moments? Is this lost customers and closed branches everywhere? Non of that at moment and bank will have first ever real profits over 5 years time so just leave it sometimes to settle down as all of troubles have passed and it is time to recover.
RNS show number improvement and nothing can kill it at moment as everything are on tracks and it will come back its true values .
Longfell
Reported.