Metro Bank recently came top of a consumer satisfaction league table, financial sharks are circling the challenger bank.
Metro Bank is now the second most shorted company on the UK stock market. That means a lot of financial firms are betting the bank’s shares will continue to fall – despite having already lost 80% of their value in the last 12 months.
Ever since Metro Bank revealed it had made an error in calculating how much shock absorbing capital it was holding, there have been some serious questions in the minds of regulators about the bank’s operating competence and in the minds of investors about its basic business model.
So what’s been going on?
Earlier this year the financial regulator, the PRA, raised concerns with the bank about inconsistencies in the reports it was submitting.
It soon emerged that the bank had miscalculated the capital it needed to support some of its commercial lending. The news sent the bank’s shares down nearly 40% in one day as the bank said it would need to raise more capital by selling new shares.
Miscalculating the amount of capital you have or need to support your lending is one of the most fundamental mistakes a bank can make.
It gets to the very core of what a bank does – namely take deposits from savers and lend those out to borrowers.
The bank’s capital is a financial cushion to make sure that depositors money is safe even if some of the borrowers can’t pay back their loans.
One banking veteran told the BBC that it was “staggering, beggared belief” that a bank could get such a basic thing so wrong. “Operating with insufficient capital is the cardinal sin that brought us the financial crisis”.
Metro Bank is clear that it had sufficient capital to support its current lending but analysts told the BBC that future growth plans also need to be supported as it planned to grow faster than it could earn additional money to support future lending.
Be careful who you are choosing as your business banking partner.
For the full story, please see the BBC News article (link below in the credits)
Founder & Head of the Hive
Honey Bee Accountancy
Source: BBC News