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From ‘Challenger’ to ‘Facing Challenges’: UK’s Metro Bank enters turbulence

Metro Bank expects to take a lower-than-expected one-off restructuring charge of between 10 million pounds and 15 million pounds in 2023

Crises-ridden Metro Bank of the United Kingdom has announced sweeping cost-cutting plans aimed at bolstering its finances, which will potentially result in the troubled British lender laying off 20% of its staff and axe its biggest customer perks like seven-day opening hours.

The financial venture, which has received shareholder approval for a 925-million-pound refinancing and recapitalisation plan backed by Colombian billionaire Jaime Gilinski, now expects the cost reduction plan to deliver up to 50 million pounds (USD 63.45 million) of yearly savings, with completion in the first quarter of 2024.

The bank also expects to take a lower-than-expected one-off restructuring charge of between 10 million pounds and 15 million pounds in 2023.

Metro Bank, which was launched in 2010 to challenge the dominance of Britain’s big banks, has hit a string of setbacks, including accounting errors, leadership departures and delayed regulatory approval for key capital reliefs.

Metro Bank was launched in the wake of the 20008-09 financial crisis and was the first High Street bank to open in the United Kingdom in over 100 years. Its founder, Vernon Hill, said at the time that he wanted to do things differently. Following the vision, the bank started offering customer-friendly perks like opening its doors seven days a week and even putting out water bowls and dog biscuits for customers’ pets.

Metro Bank currently has 76 branches across England and Wales, and in July 2023, it planned to open 11 more across the north of England by 2025.

In addition to the jobs cut, the lender, known for its centrally located branch network, will invest in automation for back-office operations and improving digital services.

The lender faced an accounting scandal in 2019, which led to the departure of its top executives, including Hill.

As per the analysts, since then, Metro Bank has been struggling to return to the profit path, as its brand value has been tarnished.

The lender recently had asked regulatory watchdogs for permission to use Metro Bank’s own ratings system to value its mortgages and its assets, in order to free up cash and grow the business further. However, in September 2023, the regulators asked the bank to use an external rating system.

In October 2023, reports suggested that the Metro Bank was looking to raise money from investors, and lenders and possibly considering selling some of its mortgages before refinancing some of its debts.

As per the analysts, despite onboarding 2.7 million customers, Metro Bank might have struggled to make money when the United Kingdom’s interest rates were at historic lows.

In mid-October, the bank struck a deal with investors, raising 325 million pounds in new funding, as well as refinancing 600 million pounds of debt.

As per the BBC, UK Treasury officials have been in touch with the Prudential Regulation Authority, the financial services regulator, which is monitoring the bank’s situation.

Metro Bank has also kickstarted the review of its seven-day opening and extended store hours and will “selectively streamline lending” to focus on relationship banking to maximise risk-adjusted returns, as per the British media reports.

“We remain committed to stores and the high street but will transition to a more cost-efficient business model while remaining focused on customer service,” stated Metro’s Chief Executive Daniel Frumkin.

Earlier in November 2023, the bank saw a 5% drop in deposits in the third quarter but outflows had returned to “more normal ranges” after its capital injection. Its shares have lost 68% of their value so far this year.

The venture’s three board members will also step down at the 2023 end, leaving the board with five non-executive and two executive directors.

As of now, customer deposits up to 85,000 pounds are protected by the Financial Services Compensation Scheme, which guarantees that if a bank runs into trouble, depositors will get their money back up to that level.

That guarantee will also cover the vast bulk of Metro Bank’s 15.5 billion pounds in customer deposits, as per the reports.

The bank is currently looking at selling up to 3 billion pounds of its residential mortgages to its industry peers.

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