Deposit outflows hit the high street lender’s profits and liquidity during the first half of its financial year.
Shares in embattled lender Metro Bank have slumped after it reported an 84% plunge in profits during a torrid first half which saw customers withdraw £2bn.
The outflow of cash was primarily driven, the bank said, by a handful of commercial customers responding to “intense speculation” around the health of the high street lender following the disclosure of an accounting error in January.
For the first six months of 2019, Metro reported a statutory profit before tax of £3.4m, down from £20.8m in the same period of 2018.
The results were published after the close of markets on Wednesday and shares fell 18% in early trading on Thursday morning. They were already down by 77% for the year to date.
Issuing a warning to investors looking ahead to the next six months, the bank said underlying profitability for 2019 would reflect “income pressure” from the sale of treasury assets, the planned sale of its mortgage portfolio and deposit gathering initiatives during the first half of the year.
The bank also confirmed a story by Sky News on Tuesday night that its founder and chairman Vernon Hill was to step down from the role but remain on its board.
“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”, Craig Donaldson, chief executive officer at Metro Bank said.
Metro was forced to raise £375m from shareholders in May after concerns about the lender’s financial health emerged in the wake of an accounting error.
Mr Donaldson added that despite a turbulent first half of the year, Metro Bank had “delivered a resilient performance with both personal and business current accounts growing…[and]deposit growth returning to normal in June and July”.
The company said it expects deposits to stabilise and return to normal levels of around £15.7bn by the end of 2019.
But despite Metro’s projections, the bank’s loan to deposit ratio currently sits at 109%, up from 87% this time last year.
In further efforts to return its loan to deposit ratio to a healthier level, the bank reiterated that it planned to sell a loan portfolio valued at £521m.
The proposed deal, first reported by Sky News, is expected to see the lender offload a mortgage portfolio back to Cerberus Capital Management.
In recent years, the bank has bought than £1bn worth of assets from the US hedge fund.
The sale would, according to Metro’s financial statement, help the bank gradually manage its loan to deposit ratio back towards a medium-term target range of 85% to 90%.
“We expect the loan to deposit ratio to be c.100% by year-end 2019,” the statement added.
Metro was rocked in January when the bank disclosed that it had under-reported the risk on a number of loans on its books by almost £1bn. The news led to the exodus of a number of corporate customer and a severe hit to Metro’s first quarter profits.
In a separate statement, the bank confirmed that it would appoint an independent chair, although it failed to provide a specific date for Mr Hill, who founded the bank in 2010, to step down.
The statement added that the search for a new chair had already begun, with Mr Hill continuing in the role until a successor is appointed, after which he will remain as a non-executive director, founder, and president.