“We’re comfortable with how we allocate risk weighted assets. From our view it suggests it’s idiosyncratic to Metro Bank,” says Alastair Pate, head of investor relations at OneSavings Bank, commenting on Metro’s dramatic price plummet today.
Metro Bank shares were down -37% at the time of publication.
The high street challenger revealed a weaker than expected performance on forecast profit predictions in its 2018 final year results preview. Despite recording a 138% increase in growth on 2017, the bank reports that trading softened in the last quarter of 2018.
A reweighting of Metro’s commercial loans increases the lender’s exposure in a turbulent 2019 economy - with some 73% of investors agreeing that a recession is likely in the next two years, up from 53% in 2017.
Craig Donaldson, CEO of Metro Bank, blamed squeezed margins resulting from a price war in the mortgage market back in October 2018, according to the FT.
“There are some lenders who have a different risk appetite but that’s certainly not Metro or us. In the residential market there’s significant pressure on margins but that’s just competitive stuff rather than unnecessarily risk aggressive.”
A combination of a weakening housing market, increased funding costs and a highly competitive market have led to banks loosen lending standards in quarter three and four of 2018, according to analysis by the FT.
In August, Donaldson played down exposures: “Because we do business banking we have opportunities to manage margins across different lines so for us it’s a little easier to deal with, but if you’re mortgage-focused it must be very challenging at the moment.”
The same article also suggested that the share price of CYBG and OneSavings Bank were similarly affected by Metro’s price drop.
CYBG declined to comment.