Metro Bank (LON: MTRO) shares are down 6%. The MTRO share price problem is that the application to be allowed to sell mortgages has been declined. Whether we call it declined again or delayed again makes little difference. They’re not going to get the licence this year. If we’re really bear British property values then that could be seen as a bonus really but that’s not the way the share price is reacting.
The announcement: “Metro Bank and the PRA have undertaken significant work to date on the Company’s AIRB application for residential mortgages. In its latest discussions, the PRA has indicated that at this stage more work is required by the Company which means approval will not be attained during 2023. Whilst Metro Bank continues to engage with the PRA on its application, there is no certainty that approval will be obtained, the timing of any approval or the level of any reduction in risk weighted assets and consequential reduction in regulatory capital requirements that might be achieved.”
The fun bit here is that this is all about regulatory capital and the allocation of that across product lines. For of course that’s what caused the meltdown at Metro Bank those few years ago.
Metro Bank share price from Google Finance
As we pointed out elsewhere back then: “Metro Bank PLC (OTCMKTS: MBNKF) was an interesting growth story. The first new banking license in the UK in 100 years, strong expansion plans and recent performance and so on. The stock was thus highly rated a it should have been. Then there was a little problem They'd not been allocating capital against the riskiness of loans properly. This was not a minor issue, it was large enough - against property loans of all things - to significantly affect capital ratios. Thus a capital raise was necessary - which took place - just as a first step. Beyond that either more capital or a shrinking of the loan book. This has quite obviously hampered the value of the stock. Partly because of the mistake. But also because the aftermath quite clearly means it's no longer a growth stock and that hits the rating.”
It’s even possible that the PRA are being a bit too detailed about this but given that background any bureaucracy would be, wouldn’t it? So we can’t really fault them for being a bit hesitant. The thing under discussion is the very thing that near - and it did, near - led to the bankruptcy of Metro Bank only a few years back.