Metro Bank shares tumble despite 456% surge in first-quarter profits
The lender clinched 88,000 new customer accounts over the first three months of the year.
Metro Bank shares tumbled as much as 10% despite it reporting a 456% surge in bottom-line profits in the first quarter, as investors turned attention to the bank’s capital targets and higher costs.
The lender said it booked statutory profits of £8.6 million in three months to March 31, up from £1.6 million in the same period last year.
It came as Metro clinched 88,000 new customer accounts over the first quarter, bringing its total to over 1.3 million, while its loans book grew 69% to £10.97 million.
Deposits rose by 41% to £12.7 million.
Chief executive Craig Donaldson told the Press Association he expects continued growth “across every metric” going forward.
“We’ve now delivered seven quarters of increasing profits and over the last seven and a half years.
“Our deposits and lending and customer numbers have grown every quarter… and every metric says that will continue.”
But that optimism did not sustain Metro Bank’s share price, which dropped as much as 10% after the earnings release.
Jefferies analysts led by Joseph Dickerson said there was “disappointment” over a “laundry list” of significant near-term investments which stand to increase cost expectations over 2018 and 2019.
It also said Metro Bank may need to raise fresh capital of £250 million to £300 million through the sale of new shares to maintain its CET1 levels – referring to the capital cushion that underpins a bank’s loans.
“In today’s release, management go to lengths to discuss “significant” investments this year in the digital offering, stores, the bid for RBS alternative resolutions package and regulatory projects over the year,” Jefferies said.
Metro said it spent £590,000 last year on activities related to putting together its application for a portion of the near-£800 million pot designed to spur competition while helping RBS avoid the sale of around 300 Williams & Glyn branches.
That is an increase on the £129,000 Metro Bank spent on preparation of the application last year.
It is hoping to clinch £120 million in funding to take a larger slice of the business banking market.
The lender said it would also invest in its digital offering, while it is set to open 12 new stores in 2018.
“While all of these items help position the bank for the near term and get it to scale so as to achieve 2020 targets and beyond, they come at a near-term cost to earnings estimates,” Jefferies said.