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I agree with the general sentiment re specialist lending but its no simple task to transform the balance sheet. The core transaction bank costs a minimum of £400m to run, and as Carlyle found, uneconomic to exit. It takes a lot of niche lending to get say £600m of risk adjusted revenues to deliver a £150-£200m PBT. And as Close has found, you have to make some big, concentrated bets and it only takes one or two of them to blow up and even a well run. well respected business like Close is on the rocks. It could be done, but as is obvious by the record to date- not by this management team, They will, as all low performing banks do, just march up the risk curve writing the business the smart ones don't want and buying the rubbish they want to offload. Unfortunately the best answer is to sell the bank to a well run competitor/specialist. We wont get rich but at 40-50p we get something. Wait too long and Frumkin - the most inept, accident prone CEO in UK banking-will have found something else to trip over and we are back in resolution.
Ratesetter has been shut down and most of its staff fired. Given there were around £30m of costs when it was acquired probably makes up a fair chunk of the £50m cost save. Management line was that unsecured worked better in low rate environment- but that is code for saying tehy wrote a load of loans in 2022 at less than 5% - unhedged of course- so the book was underwater. When Galinski demanded cost reduction it was an easy target. But lo and behold it turns out that if you close a business that was writing £1.5b a year, you end up with a gap in your lending the following year. But nevermind, they can take some wild punts on £45m loans to individual businesses and expand their concentrated lending in Care Homes and Hotels. What could go wrong?
No mention of profitability- they don't tend to provide a number in quarterlies but when its good news they tend to splash on it, so assume the loss was material. 25% reduction on current account sales vs Q123 is not as bad as it could have been after October debacle, but likely points to continuing decline in low cost deposits. Cost cutting will make this worse, Lending looks weak. At the moment they are just cycling assets into cash. Very exposed if rates do come off. Can't see an organic turnaround here. Needs capital and a new management team.
What are people expecting from Q1 results? Profitability looks unlikely given Q423 losses which will flow into Q124. I would expect a £30m underlying loss. But i don't think that will move the price significantly up or down. That would require some form of transaction. Hard to tell if recent positive sentiment reflects movements there or is just reflective of overall volatility given limited free float
Not easy to do when there's no liquidity in the market. You'll find the sell price is a lot lower than the spot rate.
Thanks- makes sense. Suspect the little guy doesn't usually win in this sort of highly manipulated game.
"Shorts tend to lift the price early in the morning then sell heavy into the afternoon .. "
Blimey Temple of Doom- I reckon if I had bought at the close and sold at mid-day in the week since you gave this advice I would be up 25%.... This looks to be a share that is going for long circular walk everyday.
While utilizing ChatGPT for investor relations may offer cost savings and efficiency, replacing the entire management team with an AI might not be feasible or advisable due to the complexity of leadership roles and the need for human judgment and empathy in decision-making processes.
Thanks Five. I enjoyed that. In all seriousness I hope you keep your job and are blessed with a management team able to display leadership, judgement and empathy in the not too distant future
"I asked ChatGPT to reply to ChatBot2 response. AI vs AI."
A very sensible answer Chat GPT. Replacing Metro's investor relations team with Chat GPT sounds like one of the more sensible cost reduction options taken. Can we do the same with the management team?
No. Running an unhedged balance sheet which has resulted in the bank foregoing >£200m of income which would have avoided the need for a capital raise and saved most of us on this chat significant money is what is absurd.
I have to assume from your limited understanding of the issues that you must be what is left of Metro's investor relations team!
If the UK had a deep pool of government guaranteed 10 year mortgages you can bet your life Frumkin would have put everything he had into them for an extra 20bp. So now we are just arguing how stupid Frumkin was, but we can atleast agree he was pretty f*ing stupid
Slight corection, They put most of the £3b of mortgage sale into Gilts, adding to a book of atelast £2b. SO they have £5b of treasury assets yielding 0.5%. It is in the annual reports- you can see what it does in the fair value adjustments. So yes, Dan Frumkin was just as stupid as SVB
"SVB bought securities with long-dated maturities in what was a low return environment. Dan Frumkin did not succumb to the same stupidity so I don’t understand"
Metro put atleast £4b of the proceeds of the mortgage sale in long dated government gilts- average of c5 years from what i can see. You can see it in the latest results. you clearly just dont understand the basics here
"Chatbox1 can you try and translate that into plain simple English there is alot of smoke and mirrors in those posts and it's difficult I guess fir most readers to figure out what you are trying to say!"
Difficult when you deal with experts for a living but i will try. Metro should have made a load of money from rising interest rates because it had a load of low cost deposits. The challenge is because its assets were unhedged you have to wait until they mature (i.e. if you took out a 2 year Fixed term mortgage i have to wait 2 years and then reprice it). That should still have been ok albeit we missed out on the bonanza that saw other banks reach peak profitability this year. We shoudl have seen strong profits in 2025. But rising rates also push up the cost of deposits. That was entirely manageable with the business Metro was running, but Frumkin somehow managed to engineer a run on the bank which meant 25% of his low cost deposits walked out the door. That has cost the best part of £70-£100m quid and pushed the bank back into losses. The cost programme is a short term option to stem the bleeding but unfortunately what they have targeted are the higher yielding consumer finance business which would be making good money today, and the branch business which underpins the low cost deposits. So as I said, their low cost deposits are disappearing replaced by very expensive retail and wholesale funding. The bank needs higher yield lending to make that work. But at the moment it has £3b of mortgages that are underwater and clearly uneconomic to sell and £5b of treasury assets a bunch of which is where Frumkin put the funding from selling the last chunk of mortgages to Natwest in, so are locked in at 0.5% until 2025. Criminal stupidity that has long reaching consequences not unlike SVB. I want what you want, which is a Metro bank that works. But it can't be done as a stand alone entity anymore. And we retail investors are highly vulnerable because Galinski will dilute us given half a chance, either when he has to put the money in to unlock teh organic strategy or if he becomes the buyer. So we need the bank to fire Frumkin and sell ASAP
Firstly, the hypothesis that you should stick together a specialist lender with a subscale current account provider is one i entirely agree with. It helps solve the quality of earnings issue with the former and the scale issues of the latter. So you get a tick for that
The issue is that Metro does not have the organic capital generating capability to do this sort of balance sheet transformation on its own in the near term.. As i have outlined below, it takes 3 years before management think they will make meaningful profits and there is plenty of downside in the interim. I wont set out in detail the maths behind why you can't just cycle existing mortgages and treasury assets into high risk lending in 2024.25, but its to do with the fact that the book is unhedged. So you need fresh capital to achieve this ambition (and again, a competent management team)
I think holding on expecting this management team to pull off the unlikely outcome above is a bad option. Which leaves 2 others
Firstly Galinski could do the buying . The issue for us is he will want to back the combination into the Metro entity to avoid fair value issues. That means it will involve cash and paper. And guess who will get diluted on that one. Yes, the same mugs (like me) that got diluted last time.
Alternative is to sell (to Shawbrook). I am all for that. But we need Frumkin out the picture, because he is seen as a complete fool by anyone that has had dealings with him including I strongly suspect both Pollen Street and Shawbrook management
"So we can expect Chatbot2 to come on line shortly to try and talk the share price down..."
Go on then, It's a quiet day and i'll have my 2p's worth (or £2.50p as Non-partisan will wittily point out).
I should start by saying I am not a day trader. I don't trade momentum and unlike TOD (thanks for genuinely useful intel BTW) I don't understand the dark arts of shorting. If you do, then i am sure there is money to be made from the volatility that there will be as this bounces between 27p and 34p for the next few months.
But you and others like Sharebul are moving into my territory when you talk about fundamentals and, in the probably naive view that there remains a vanishing small number of people on share chat who want to understand them. I'll set out the issue with your hypothesis regarding a re-rate
I didn't want to say it, but from what i can see TGTD:
a) Does not understand the impact of interest rates on a bank
b) Does not understand the difference between current accounts and other deposits
c) One minute says something is worth 70p then its 40p
is it me, or is there a strong possibility that TGTD is actually Dan Frumkin?
So who knows anything about Pictet Asset Management?
According to the website:
"Our structure as part of a privately-held partnership, rooted in Swiss tradition, gives our independent asset management business the freedom to concentrate on the long-term view, without the pressure of external shareholders. This allows us to give you our undivided attention, offer pioneering strategies and deliver successful investment performance."
So why is a secretive Swiss Asset Manager shorting us? Dori. any thoughts?
"So why were you not here crying out that Frumkin was lying at the last trading update guiding the market that Metro Bank had returned to profit and was now firmly reaping the fruit of its recovery?"
In terms of lying. i do believe there may be a case for litigation. In the prospectus the bank guided to low single digit ROTE in 2024, despite knowing the catastrophic impact of losing those deposits. So maybe rather than hoping they can turn it round the value play might be to sue them.
"So why didn't you take your own advice and not invest in Metro Bank last year if you thought it was a shoddy poorly led business?"
Because i genuinely thought that in a rising rate environment it was impossible to mess it up. From Dec 19- Dec 22 the bank had grown current account balances from £4.3b to £7.9b. Not i should say, because of anything Frumkin did. But people opened current accounts, and during Covid, kept a load of deposits on them. All they had to do is keep their fair share of them by not messing up. But they did. They lost all that value because the CEO was a clueless baffoon. And now he thinks by sacking everyone and destroying the model that generated those deposits, he can save his skin. But it just doesn't work. You cant shrink your way to glory with a sub scale current account business.