(Alliance News) - Metro Bank PLC after the market close Wednesday reported a sharp drop in interim pretax profit amid market challenging conditions, as the high street lender embarks on a search to find a new chair.
For the six months to June 30, the company reported a rise in total underlying revenue of GBP216.7 million, up 14% from GBP189.8 million the year before. However, statutory pretax profit declined 84% to GBP3.4 million from GBP20.8 million last year and underlying pretax profit fell 44% to GBP13.6 million from GBP24.1 million the year prior.
The company attributed the profit fall to a reduction from the impact of adopting IFRS 16 accounting measures from January 1 and interest expense on the Tier 2 debt issued end June 2018. In addition, market compression in mortgage rates, the sale of treasury assets during the period, and its ongoing transformation programme and remediation costs, had a detrimental effect on profitability.
"This has been a challenging first half for the bank, with deposit outflows following intense speculation at the time of our capital raise in May. Despite this, we have delivered a resilient performance with both personal and business current accounts growing alongside increased revenues and fee income, with deposit growth returning to normal in June and July to date," said Chief Executive Officer Craig Donaldson.
On a positive note, the company said total deposits returned to net growth, with net deposit inflows of over GBP700 million in the last eight weeks, including July. Loan growth in the period amounted to GBP15 billion, up 25% from GBP12 billion last year and total deposits was GBP13.7 billion, in line with the first half period last year, following net outflows of GBP2.0 billion.
Metro Bank said deposit performance in the second quarter was hurt by intense speculation at the time of its well-documented capital raise, driven by a limited number of commercial customers withdrawing deposits.
The company said it saw the successful completion of an "upsized" equity capital raise during the period, to support growth resulting in Common Equity Tier 1 ratio of 15.8%, "materially exceeding" its regulatory minimum requirement of 10.6%. Metro Bank attributed this to successful completion of a GBP375 million equity capital raise in June, which was enlarged from an initial target of GBP350 million due to strong demand from both existing and new investors.
Further, Metro Bank reported customer account growth of 190,000 in the first half to over 1.8 million, which includes year-on-year personal current account growth of 23% and business current account growth of 19%.
"As we enter our tenth year on Britain's high streets, Metro Bank continues to revolutionise the UK banking industry. We remain relentlessly focused on delivering the very best in service and convenience for our customers. Our upsized GBP375 million equity raise was significantly oversubscribed, showing investors' confidence in our strategy and our absolute focus on creating FANS. We will continue to strengthen our foundations as we deliver our growth plans," Founder & Chair Vernon Hill said.
In a separate announcement late Wednesday, the bank said it has started the search to find a new chair to replace US billionaire Hill, who founded Metro Bank in 2010.
Metro Bank did not set a timetable for Hill resigning as chair and said he would remain a non-executive director and president of the bank.
The company has been under pressure to reform its governance since it suffered a highly-publicised accounting blunder at the start of the year.
Metro Bank shares closed down 4.2% at 476.40 pence on Wednesday.
Metro Bank (MTRO)