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Metro Bank’s former chief executive accused the financial regulator of being “too busy” to properly supervise what was the UK’s seventh-biggest lender in the lead-up to its £900mn accounting error.
Craig Donaldson, the lender’s ex-CEO, and David Arden, the former chief financial officer, claimed in written court arguments that the Bank of England was fully aware of issues that Metro Bank had with calculating its risk-weighted assets in late 2018.
There were, meanwhile “no assigned supervisors at the time” from the Financial Conduct Authority, which told Metro Bank it was “too busy and would continue to get information” from officials at the BoE’s Prudential Regulation Authority, Donaldson and Arden have claimed.
The pair have mounted a legal challenge that began this week against respective fines of £223,100 and £134,600 meted out by the FCA as a result of the accounting scandal. When Metro Bank admitted its £900mn error in early 2019, mostly related to the riskiness of its commercial property and buy-to-let portfolios, its shares fell 39 per cent.
The FCA alleges that Donaldson and Arden were “knowingly concerned” with the bank’s misstatement. The former executives argue they took legal advice, informed the PRA and the bank’s board. They say the legal advice from Linklaters, the law firm, was to update the market only when a review had concluded.
Disclosing to the public that it had “discovered an issue” with its calculation before being able to quantify it “would likely have been catastrophic . . . [and] would have had serious prudential consequences for one of the UK’s major banks,” they added.
The FCA fined the men and the bank in 2022 for allegedly misclassifying a large number of commercial loans, which meant the lender did not have enough capital.
Founded by US banker Vernon Hill, Metro Bank became the first new high street lender in the UK for a century when it opened its first branch in central London, in 2010. It stood out for its contrarian approach as it doubled down on the high street with 24/7 physical branches at a time when most banks pivoted to digital.
But the company’s growth took a hit after the discovery of the major miscalculation led to investigations by both FCA and the PRA. The bank was fined a total of £15mn by both regulators while the FCA fined the two executives after they had already stepped down from the lender in 2022.
Metro Bank’s woes compounded after the accounting scandal. The lender, which had been seeking permission to use its own internal risk models rather than the so-called standardised model, faced delays in receiving regulatory approval. This stunted its chances to improve its capital position and boost its profitability.
This led the company to seek £600mn in emergency capital in 2023, after Metro Bank’s shares fell more than 50 per cent in the wake of the bank admitting it was nowhere near receiving the key approval from regulators.
After a £925mn refinancing deal hastily agreed in October 2023, Colombian billionaire Jaime Gilinksi became the bank’s majority shareholder. He is stirring the bank through a restructuring, pivoting away from retail banking and towards specialist lending to businesses and SMEs.
The eight-day trial continues at the Upper Tribunal, which hears appeals against regulatory decisions.
