Metro Bank shares plunge as regulators circle

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Metro Bank, the lender founded by U.S. entrepreneur Vernon Hill, plunged to a record low after it disclosed that British regulators are probing how it misclassified assets, an incident that prompted a share sale.

Shares in Metro Bank tumbled as much as 20.8 percent to 1,030 pence, the lowest since the London-based lender first sold stock to the public in 2016. The firm disclosed Tuesday that the U.K. Financial Conduct Authority and Prudential Regulation Authority will “investigate the circumstances and events” that led it to adjust its risk-weighted assets last month.

Metro is preparing a 350-million-pound ($464 million) share sale to shore up its balance sheet. The bank also plans to sell about 500 million pounds of bonds later this year to help ease capital concerns, Chief Executive Officer Craig Donaldson said.

“It has been a very chastening experience for us,” Donaldson said in an interview. “The buck stops with me. I did offer to resign, but the board have supported me. It was decided it was right that I should not get any bonus for 2018.”

In January, Metro Bank said it mistakenly applied a risk weighting that was too low on some of its mortgages, resulting in the need to put more capital behind its existing positions. The incident has roiled the lender, sending its shares to a record low and prompting some analysts to question the future of management.

The investigation “means that heads could roll,” John Cronin, an analyst with Dublin-based Goodbody, said in an email. “It’s very hard to be in any way positive on this bank, and I remain of the view that fundamental value is materially divorced from market value.”

Spokespeople for the FCA and the PRA declined to comment.

On Tuesday, Metro Bank also said it would have to slow down a growth plan that had seen it dot southeastern England with new branches while the U.K.’s incumbent lenders were closing them. Additionally, Michael Snyder, a member of the lender’s board, will replace Ben Gunn as senior independent director and become chair of its audit committee, while the bank is also continuing a search for another independent non-executive director.

Metro Bank hired RBC Capital Markets, Jefferies and KBW for the stock sale, which is expected in the first half of this year after “consultation with shareholders,” according to a previous statement in late trading Tuesday. The underwriters are aware of the regulatory probes, executives said on the conference call.

Bloomberg News