(Alliance News) - Metro Bank PLC sunk to an annual loss in 2019, the lender reported Wednesday, as it struggled to cope with a "very challenging" year.
Shares in Metro Bank were down 8.5% in London early Wednesday at 175.70 pence each.
In 2019, the challenger bank recorded a pretax loss of GBP130.8 million, compared to a GBP40.6 million profit in 2018.
The loss includes GBP68 million of intangible asset write-downs from discontinuing certain "work projects" or removing older IT projects that no longer meet with the bank's new strategy.
Net interest income slipped 6.7% year on year to GBP308.1 million from GBP330.1 million. Total income, however, was up 2.8% to GBP415.6 million.
Metro's total operating expenses jumped 50% in 2019 to GBP534.7 million from GBP355.5 million.
The bank's cost-to-income ratio worsened to 129% in 2019 from 88% in 2018.
It was not all bad news for Metro, however, as it was able to grow its loan book during the year, achieving a 3.2% rise to GBP14.72 billion from GBP14.27 billion at the end of 2018.
Commercial loans slipped 7.1% to GBP4.05 billion but retail mortgages rose 8.3% to GBP10.43 billion.
The lender's net interest margin worsened to 1.51% from 1.81% in 2018. Metro blamed the drop on its attempt to "maintain a resilient balance sheet", which included a GBP521 million loan portfolio disposal and GBP1.5 billion in treasury asset sales.
Metro's CET1 ratio ended 2019 at 15.6%, up from 13.1% at the same point the year before.
Customer deposits slipped 7.5% to GBP14.48 billion from GBP15.66 billion.
"Our financial performance reflects a very challenging year for Metro Bank. External headwinds, internal challenges and actions we took to put the business on a more positive trajectory are reflected in the results," Chief Executive Dan Frumkin said.
He added: "Despite this, Metro Bank's market-leading service proposition continued to deliver growth in customer accounts, and our balance sheet ended the year in a materially stronger position."
Elsewhere, the bank said it is set to hand back GBP50 million of the GBP120 million award from from Banking Competition Remedies Ltd, a fund set up by the Royal Bank of Scotland Group PLC.
The GBP775 million RBS fund - which was a UK government requirement for bailing out RBS during the financial crisis a decade ago - is to be used for UK small and medium-sized enterprise lending.
Metro's commitment to BCR was to spend GBP2 for every GBP1 it received. The lender reaffirmed this commitment but for the lower amount of GBP70 million.
Metro has, however, reduced its commitment to new store openings in the north of England, saying it will open 15 new stores by 2025 rather than the original 30 promised.
Looking ahead, Metro said it has "refreshed" its strategy, following a comprehensive review of the bank.
Frumkin said: "We've fully evaluated our strategy, and have a clear plan which will return the bank to sustainable growth built around a community banking model."
Metro will focus on "robust" capital and liquidity, "strong" asset quality and a "simple" balance sheet. It is targeting return on tangible equity above 8.5% by 2024.
For revenue, Metro is guiding for its net interest margin in 2020 to be in line with the fourth quarter of 2019, which stood at 1.30%.
Deposits are guided for mid-single digit growth in 2020, but operating costs are also to grow by mid-single digits.
Metro is targeting a CET1 ratio above 12%.
"An enhanced focus on costs, improved productivity, and investment in our infrastructure will enable our deposit-led franchise to deliver profitable growth over the medium term. Thanks to the steadfast commitment of colleagues across the bank, I am confident we will successfully execute against these priorities to become the UK's best community bank," Frumkin added.
Metro also noted it is changing its quarterly reporting. The bank will issue full year and half year reports, as required, but will only issue trading updates on the first quarter and third quarter.
By Paul McGowan; paulmcgowan@alliancenews.com
Copyright 2020 Alliance News Limited. All Rights Reserved.
Metro Bank (MTRO)