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Metro Bank has a credibility problem

The British challenger needs to be more realistic about its future, with Brexit and other risks ahead.


Metro Bank’s chairman Vernon Hill

Capital U-turns, drastically downgraded profitability targets, questions about related-party dealings: this is not how the bank with the strongest valuation in Europe should be run.

UK challenger Metro Bank has, however, had to turn back to its shareholders for another £300 million in equity in an overnight placement – despite having insisted it would not earlier this year, when analysts’ concerns about a possible capital shortfall triggered a sell-off.

Metro’s targets are now "a laughing stock", commented research from Goodbody, as it downgraded its 2020 ROE target to 11.5% from 14% after the capital call.

This is an embarrassment for Metro Bank’s chairman Vernon Hill, who has long traded on his reputation as the founder of Commerce Bancorp in the US. Largely thanks to that example, Metro is valued at almost three times its consensus 2018 book value – although a tightly held shareholder base means its stock is relatively illiquid.

Like Metro Bank, which Hill launched in 2010, Commerce rapidly grew through branch expansion in the 1990s and early 2000s before a sale to Canada’s TD Bank in 2007. But the US bank had much higher capital accumulation and returns during that period, according to Berenberg.

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