Member Info for Chatbot2

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.

" The mortgage book brings an attractive proposal to any likely suitor. "

I've got another unhedged mortgage book yielding 3% if you want one. Special price- 99p in the £1.

"Chatbot2; Do not see WHY gilinksi has kept Frumkim on in his role ? With what has happened to Metro under his watch"

Combination of what Westang said and i said. i,e, Frumkin put Galinski ahead of alternative bidders throughout the last year because Galinski was the only person who might keep him in role. In return Galinski got to buy in at what seemed a knockdown price- not so sweet now though

The issue now is that it isn't easy to replace him. Galinski not (yet) on the board. Chairman in particular hugely compromised. Firing DF might put the bank back in the regulatory spotlight and expose possible misconduct all round

But not firing him gets in the way of a deal. Maybe they need to do the old Lenin trick and just bring Frumkin out for special occassions- but after last weeks performance they best tell him not to open his mouth. But Galinski then needs to pull his finger out and do the negotiations. At 40p he's not too embarrassed and we might end up with a half decent bank.

"Presume gilinksi knows what hes doing. Frumkim was his patsy, to get capital raise done. Wasnt frumkin mates with founder? Was founders patsy?"

I think the link was old CEO (both at NatWest when that bank's shareprice collapsed from £40 to £2.50); So between them they have outdone Fred the Shred!

"I am agreeing as CEO should go as he have this mess and can't fix it . Time for change and correction its direction."

Look! Even Dori is on board!

Challenge is not so much when to sack DF but who to replace him with (who would take it). Its a tricky one. General view is that Shawbrooks the right deal and their CEO well qualified to run the combined business. What you need is someone to manage through that deal who can strike the right balance between getting a good price and not having Pollen Street walk away and wait for resolution. To do that you need to have a decent Plan B which gives enough of an option to put Lindsey under a but of pressure. Which is why Frumkin is completely shot in terms of running any negotiation. Ideally whoever is running the Co-op deal from the UBS side looks to be the perfect fit, but would probably cost too much to prize him away

Ok so to correct TGTDs entirely incorrect assertions reflecting the fact that he clearly does not understand either basic economics or a bank's balance sheet.

1) an inverted yield curve means that future rates are below current rates. 5 year swaps are currently 3.9%. That means new mortgages will be written at about 4.5-5% while metro is raising new deposits at 5% plus. Sensible banks swap off that risk. Metro doesn't. Its cost of funds is rising very rapidly and while the benefits from cycling its unhedged assets diminishes as rates fall back.

2) £8b refers to current accounts which is the lifeblood of metro. As per latest results in 2022 metro had £7.9b in current account balances. In 2023 that was down to £5.7b. In frankly a ludicrous fashion frumkin brought in new deposits well over base rates to obfuscate the serious outflows of low cost deposits. That just loses money

The rest of the market can see and understand that. But I suspect that is beyond you.

If you want to believe that Galinski is a genius its just the rest of the market that is stupid, that is up to you. But you should really try and up your knowledge on fundamentals. I had to call you out in october because you thought selling teh mortgage book would provide new capital for new acquisitions, when in fact it would have depleted CET1, and I had to explain to you how the bank could ink a statutory profit and an underlying loss.

All you seem capable of doing is pointing out that Cyberdoggy has (correctly) consistently suggested the share price will come down and that I am not as rich as galinski. Both are correct, but in my defence, i did not inherit a fortune from a billionaire agriculturalist from Cali

For the benefit of Non-Partisan and rest of the tik tok generation here is the concise version:

The bank will post a material (my guess £50m) loss at the half years reflecting deposit outflows and the impact of an inverted yield curve on a (negligently) unhedged balance sheet

We will also see current account balances fall further-my guess down to £5b (from c£8b in 2022) as attrition outpaces new account acquisition

The bank will signal a need to raise more equity- probably another £150m

The share price wont tank- 30-35p reflects that level of dilution with new shares issued at 30p.

I would not sell today- the hope is that a buyer comes in around 40p. But retail investors are not going to get super rich. Metro bank is not Invidia, and Dan Fumkin sure ain't Jensen Huang. The reason i am posting is to highlight the need for all investors to demand a change in management so we have someone credible fronting up the sale. Word on street is that DF is just an embarassment, and no one will deal with him

Err- interesting Maths. You would gave spent £150m on owning a 52% share of a business now valued at £236m

Concise enough?

My final point is that you and others presenting people like me and other sensible posters as shorters is itself a bit silly. If i wanted to short this stock i would have talked up the year end performance, focusing on the actually meaningless statutory profit in the hope that the market was stupid enough not to see through it. I would then have a decent downside when management announce their £50m underlying loss in the half years. Because, as i said, 30p a share implies the market believes the bank needs more equity. So i wouldn't be shorting at 30p- or if i was, i would be putting it out there that the bank is insolvent- which it definately isn't. Its just zombiefied until decent management get us a decent transaction. Even then i doubt i will recover my money, but hopefully some of the 3,000 current employees wont be joining the 1000 poor soles joining the dole queue this month because a wholly incompetent management team has been allowed to run amock

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.

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.)

Errr- and i was referring to your illiteracy- but it would appear your sense of irony is as acute as your investment acumen!

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

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.

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...