Metro Bank hit with £5.4m fine for loans blunder

Metro Bank has been slapped with a £5.4million fine over an embarrassing accounting debacle.

The lender had a disastrous year in 2019 after it admitted that it understated the risk in a string of commercial and buy-to-let property loans.

In turn, this meant the bank presented an inaccurate picture of how much capital it had. In 2019, it revealed that it had made a £900million adjustment to correct the problem, sending shares down heavily.

Ousted: Metro Bank founder Vernon Hill (pictured with Yorkshire terrier Sir Duffield), was forced to step down after a disastrous year

To make matters worse, it tried to claim that the error had been spotted by its own staff. In fact, as the Mail revealed, the mistake only came to light when it was discovered by the Bank of England’s regulatory arm, the Prudential Regulation Authority (PRA).

After a long-running probe, the PRA announced yesterday that Metro had failed ‘to act with due skill, care and diligence’ in the reports it handed in to regulators.

It also accused Metro of deficiencies in governance and failing to invest enough in its reporting framework. But it reduced the fine by 30 per cent due to the bank’s cooperation. Otherwise, the penalty would have been £7.7million.

Sam Woods, a deputy governor at the Bank and chief executive of the PRA, said: ‘We expect firms to invest appropriate and adequate resources to ensure that they submit accurate regulatory returns.

‘Metro Bank failed to meet the standards of governance and controls expected of it.’

The debacle prompted the ousting of Metro’s former chief executive Craig Donaldson and its flamboyant founder, US businessman Vernon Hill, a dog-lover who is often seen with his Yorkshire terrier Sir Duffield, and who stocked branches with dog biscuits and water bowls.

Investors had grown worried that there were too few strong, independent voices on the board to challenge him.

By that point, Metro had drawn sharp criticism for making £25million of payments to an architecture firm run by Hill’s wife.

When the lender launched in 2010, it was the first to be granted a high street banking licence in Britain for 150 years.

Committed to opening more branches as others reduce their networks, Metro typically keeps its outlets open for longer hours than traditional banks.

Its shares are still 94.5 per cent lower than they were at the start of 2019, as the accounting gaffe forced the bank to go cap-in-hand to investors for more money.

The shares slid in November when talks ended with US private equity group Carlyle over a possible takeover.

When it had to raise debt to boost its buffers shortly after the accounting gaffe, it had to offer buyers of the bonds a high interest rate – or ‘coupon’ – of 9.5 per cent.

Russ Mould, investment director at AJ Bell, said: ‘Shareholders won’t be smiling about the £5.4million fine from the regulator but they seem relieved all the same, as the shares are still up.

‘The levy is not a major burden, even though the bank is in loss, and investors will be hoping the regulatory mis-step belongs to a different era, under the old management team, rather than the new one spearheaded by Daniel Frumkin since early 2020.’

Frumkin has been overhauling the bank to reduce its reliance on expensive fixed-term savings accounts, to draw in deposits, and unprofitable low-risk mortgages.

It has bought online lender Ratesetter, and sold a £3billion mortgage portfolio to Natwest.