You’d think Banking Competition Remedies (BCR), the body in charge of dishing out £775m of subsidies to “challenger” banks, would be embarrassed. Its top pick for a handout a year ago was Metro Bank, which was given the mighty sum of £120m to provide stiffer competition to bigger banking beasts and improve the lot of small business customers.
To say things haven’t worked out as intended would be an understatement. Metro has spent the past 12 months challenging the wealth of its shareholders, consuming the energies of financial regulators, and taking ages to defenestrate its controversial founder, Vernon Hill.
Those difficulties stem from a £900m loan misstatement that, crucially, was revealed before the BCR handed out its prizes. The size of the award seemed to defy common sense even at the time. Metro’s share price was plunging (even if it had a lot further to fall) and the smell of crisis was unmistakable.
Now, it turns out, Metro’s new chief executive, Dan Frumkin, thinks the bank can’t live up to all his predecessors’ promises to the BCR – hardly surprising after a thumping £131m loss for 2019 and the need to retrench. Half of the eight “commitments” to deliver “market-leading services” to small business customers have been revised downwards and Metro is obliged to hand back £50m of its prize.
The return of part of the winnings does at least suggest checks in the system. But there are other questions. How did BCR come to its baffling original decision? Why does it still trust Metro, now valued at a miserable £330m after a 85% fall in its share price since the award, to spend the remaining £70m wisely?
Don’t look to BCR chairman, Lord Cromwell, for detailed answers. “Strategy responds to changing circumstances,” he said, putting a glossy spin on events. Metro, he asserts, has “made progress” on its commitments and it’s good that it came back with a new plan “as the context evolved”.
In truth, BCR was always an odd political creation. Its fund represented the proceeds of a fine, in effect, that Royal Bank of Scotland had to pay for its inability to divest 300 branches as required under EU state aid rules. But, since the cash is really taxpayers’ money, it’s important that it is distributed well.
BCR still maintains its award of £120m to Metro a year ago was “the right decision based on all the information that was available at the time”. That’s quite a claim. One wonders if the National Audit Office would support it.
Diageo’s exposure to coronavirus fallout could be damaging
You can’t blame Diageo for trying to estimate the hit to its sales and profits from the coronavirus outbreak. Investors in all multinationals are desperate to hear any trading report, and Diageo has a big operation in China. A local white spirit alone accounts for 2% of group sales, and top-of-the-range bottles of Johnny Walker are a common show-off present in Chinese business circles.
The trouble is, Diageo’s estimate inevitably came hedged with qualifications and assumptions. For what it’s worth, the company said there could be a hit of £140m-£200m to operating profit from the disruption in Asia.
If that were guaranteed to be the extent of the blow to profits – up to 5%, versus last year’s performance – shareholders would be relieved. But Diageo is assuming the “significant disruption” to bars, restaurants and hotels in China clears by June and that trade in South Korea, Japan and Thailand also picks up in the same timeframe.
That could happen, of course – indeed, the pace of recovery could be faster. But it’s guesswork, and Diageo’s epidemic report currently assumes zero disruption in Europe and the US. Some information is better than none – but you understand why Diageo’s share price was essentially unmoved.
NMC Health remains a constant source of unappetising news
Fresh revelations at NMC Health, the United Arab Emirates-based hospital outfit: the board has uncovered $335m worth of unapproved finance arrangements; the chief executive has been sacked; the finance director is on extended sick leave; a member of the treasury team has been suspended; the full-year results will be delayed.
This tale would be comical were it not for the fact that NMC is a FTSE 100 company. The UK’s governance regime is the envy of the world, we’re often told. Yeah, right.