Metro Bank, founded in 2010, reports that its £33.1m loss for 2011 is 40% up on the previous accounting period, when a loss of £23.4m covered the 16 months to the end of 2010. However it seems that start-up investment in branches and people may be responsible for most of the increase.
Metro has apparently spent some £2m a pop on each of its 12 branches (something like double the industry standard) in a bid to make them more inviting to punters. It has also spent £12.6m on salaries for the year, more than double the previous figure.
A new bank has got to expect such costs, right? Especially one like Metro whose founding principles were to introduce some much-needed competition into the provision of high street banking, and a vow to win clients from established rivals by offering great customer service and better financial products. Speculate to accumulate and all that.
Metro is also unusual in that it is independent and has no wholesale funding requirement. Thus market pressures that constrain larger rivals do not apply. Its first branch opened in Holborn, London in 2010 and has been joined by 11 more in the capital and the south-east, with a plan to open seven more and be profitable by 2014, at which time it intends to float.
So, have these losses derailed the plan? If Metro can win enough new business then probably not. It has been making progress in this regard, reporting at the end of last year that it had 80,000 current account customers, wooed by seven day a week branch service and 24 hour a day call centre operations. It raised £126m only last month and several of its branches – the ones which were opened first – are in the black.
Given the parlous level of customer service provided many rivals (RBS computer failures, anyone?), you would think that a new player with a new offering ought to stand a good chance of luring fed-up punters through the door.
Set against this is the fact that it remains a pretty major palaver to change your bank. If only current accounts could be made as portable as mobile phone numbers are now. Plus, people are naturally conservative when it comes to who looks after their money. Something which Metro is grappling with, as few of its new account holders seem ready yet to give the firm much else in the way of their business – it has provided just £7m in mortgage lending for 2011.
So that 2014 float date may be looking a bit optimistic, but, if it comes to it, Metro will hardly be the first firm whose IPO has been delayed by market conditions recently. Here at MT we wish them luck – we are all in favour of a bit of healthy competition in markets like these where it has been lacking for too long. How long before Metro starts making an impression on the business banking market, too?