Not for the first time this year Metro Bank (MTRO) is in the doghouse with shares down 16% yesterday and another 20% today to £10.43, a new all-time low.
Just before the market close last night the bank snuck out a fourth quarter trading update which included two damaging pieces of news.
First, both the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) are investigating the circumstances surrounding the accounting blunder in its previous trading update last month.
To paraphrase Oscar Wilde, to be investigated by one regulator may be regarded as misfortune; to be investigated by two looks like carelessness.
The second piece of unwelcome news is that the bank needs to raise £350m of new capital as we surmised in January.
The last time Metro raised capital in July 2018 the shares were at £34: to raise £350m with the share price more than two thirds lower it would need to issue nearly four times the amount of shares.
The only good news for shareholders is that Metro has a ‘standby underwriting agreement’ with brokers RBC, Jefferies and KBW which means they have to stump up any cash not raised from investors.
While Metro did manage to increase earnings last year - pre-tax profits were £40.6m against £18.7m the previous year - its underlying profitability on loans and deposits narrowed as did its capital adequacy.
Its net interest margin - the difference between what it makes on loans and what it pays out on deposits - fell from 1.93% to 1.81% last year.
Also its core equity Tier 1 (CET1) ratio fell from 15.3% to 13.1% partly as a result of having to set aside more reserves for risky assets which it mis-classified previously.
