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Metro Bank share price slides 35% due to commercial loans accounting error

Despite the UK challenger bank expecting its annual profits to more than double, its share price took a major tumble after it revealed that it inappropriately accounted for some commercial loans on its books.

Metro Bank revealed to investors that it lacked sufficient capital to support some commercial loans on its books due to an accounting mishap, leading to its share price falling more than 35% on Wednesday - its worst single day decline.

The bank has undergone a rapid expansion in its fourth quarter with more than 100,000 new customers joining the lender following its decision to open 66 new branches across the UK.

‘2018 was another strong year of growth for Metro Bank as we continued to invest in both new stores and digital capabilities to win customers, deposits, assets and to create FANS,’ Metro Bank CEO Craig Donaldson said.

‘Metro Bank remains well positioned to support our growth strategy as we navigate an uncertain period for the UK.’

Metro Bank’s riskier commercial loan portfolio

The lender told investors that its risk-weighted assets has increased to £8.9 billion, up from £7.4 billion levels at the end of September last year, with the bank more exposed to riskier loans, including commercial mortgages.

The increased size of its loan portfolio is the result of planned growth, but its book has also grown due to commercial property and other specialist loans becoming riskier after the lender mistakenly included them in the wrong risk band, which has impacted its capital ratios.

Total capital ratio is expected to be approximately 15.8% as at December 31 2018.

Metro Bank issues profit warning

The lender also issued a profit warning and warned investors that it expects capital levels to be weaker after a ‘soft’ end to the year, despite underlying profit before tax of £50 million for 2018, up 138% compared with the previous year.

Deposits at Metro Bank have reached increased 34% to £15.7 billion compared with the same period a year ago, following quarterly growth of £848 million.

Meanwhile, customer loans totalled £14.2 billion in 2018, representing an increase of 48% compared with the year prior, and total assets increased 32% to £21.7 billion over the same period.

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