The Metro Bank logo sits on a Metro Bank Plc branch in the City of London, U.K., on Wednesday, Feb. 27, 2019. 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. Photographer: Chris J. Ratcliffe/Bloomberg
© Bloomberg

Metro Bank branches are adorned with glass and marble. More Dubai than Deptford, they appeal to chairman Vernon Hill and his wife. Her business designed these homages to megabank atriums. They may wow Metro’s customers — termed “fans”. But what counts for investors are capital foundations. These have subsided recently.

Full-year results confirmed the need for underpinning. The UK challenger bank has too little capital to meet growth ambitions. Its core tier one capital ratio (CET1) has fallen. After an adjustment for higher risk-weighted assets the figure fell to 13.1 per cent by December, down over two percentage points from 2017. A plan to issue £350m in equity should solve that problem temporarily, lifting CET1 back to a 16.8 per cent.

What about the shaky reputational bedrock on which the entire edifice of Metro Bank rests? The Bank of England’s Prudential Regulation Authority has already had to announce that it, not the bank, discovered the understatement of RWAs.

The PRA and the UK’s Financial Conduct Authority have not been fooled by Metro’s artful quirkiness. They will want to know whether there was a false market in the shares and why the bank chose to polish up a regulatory oversight as a compliance triumph. The chairman and founder Vernon Hill will have picked this management team. He bears the blame for their errors.

Instead, the chief executive Craig Donaldson offered to resign. The board said no. Regulators should be less forgiving. Someone should carry the can for the debacle.

Watchdogs must also ponder whether Metro Bank should be permitted to run a tailored risk model, rather than a capital-hungry standard version. This shift may not come before mid-2021. The extra equity capital may burn away at about 40 basis points per quarter, notes Berenberg. Last year, the bank used capital at three times that rate.

Expect more than just one cash call in the years ahead. In banking, shiny facing stone is no substitute for a rock-solid balance sheet.

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