Metro Bank Holdings PLC (MTRO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Metro Bank Annual General Meeting. My name is Haley, and I will be the operator for your call this afternoon. We will be answering questions today that have been submitted in advance by shareholders as previously requested. Questions cannot be taken during the meeting as participants are on listen-only mode. I will now hand you over to Robert Sharpe, Metro Bank Chair. Please go ahead.

Good afternoon, everyone. I'm Robert Sharpe, Chairman of Metro Bank. I'm delighted to have been appointed as Chairman in November last year. And it's my real pleasure today to extend to you a very warm welcome to our 2021 Annual General Meeting, my first with the bank. As you are well aware, due to the continuing situation with COVID-19 and the government's public gathering restrictions as set out in our notice of meeting, this AGM is being held in a similar format to last year. Although shareholders are not permitted to physically attend the AGM in person, I'm delighted that you've dialed in today via our live audiocast. And as published in our Notice of Meeting today, today's audiocast is listen-only, except for the designated speakers at the meeting. Shareholders have been given the opportunity to submit questions to the company in advance, and we will be answering these questions at the end of the formal business of the meeting. And the recording of the meeting will be available on our website for a period of 30 days from today. Looking ahead, I very much hope that this time next year, we will be able to resume an in-person AGM and welcome you back to the meeting in the usual manner. Now as set out in the Notice of Meeting, the AGM is being held at the company's registered office. I am joined in person today by my fellow Director and Chief Financial Officer, David Arden. And we are both shareholders, therefore, satisfying the quorum requirements. We are also joined by the company's secretary, Melissa Conway. I would also like to introduce my other Board colleagues who have dialed in today by phone: Daniel Frumkin, our Chief Executive Officer; Sir Michael Snyder, our Senior Independent Non-Executive Director; Monique Melis, our Nomination Committee Chair; Catherine Brown, our Remuneration Committee Chair; Michael Torpey, our Audit Committee Chair; Ian Henderson, our Risk Oversight Committee Chair; Sally Clark, the Independent Non-Executive Director for Colleague Engagement; and our other Independent Non-Executive Directors, Paul Thandi; Nicholas Winsor; and Anne Grim. Before I begin the formal part of the meeting, I would just like to say a few words. Embarking on a turnaround strategy during a global pandemic has been testing. However, the strategy that our CEO, Daniel Frumkin, unveiled at the start of 2020 provided the business with a very clear road map. Today, it remains the right road map. And notwithstanding the impacts of COVID-19, it has been encouraging to see the progress in each of the key areas in 2020 and into 2021. This has included our move into unsecured lending with the acquisition of RateSetter and subsequently purchasing their back book, together with our accelerated shift away from prime towards specialist mortgages and higher margins. So just to remind everyone, our new strategy covers the following 5 key areas of focus. And these include: costs, revenue, infrastructure, balance sheet optimization and internal and external communications and the improvement in all of these areas. Like most businesses, 2020 presented us with many challenges as we responded to COVID-19 while embarking on this, our turnaround strategy. Throughout, we've been committed to doing everything we can to support our customers, our colleagues and our communities. And let me share with you some of the actions taken. All of our stores and contact centers have remained open. We have worked with customers whose personal or business finances have been impacted to ensure that they benefit from the most appropriate support. We have supported customers' requests for repayment holidays and lent GBP 1.5 billion of government support loans. We have put in place new processes to help the most vulnerable customers. And our colleagues have continued to support the local communities they operate in through a range of volunteering initiatives. Metro Bank had remained steadfast in its commitment to provide banking services and support to our customers, especially at a time when community banking has never been more important. And I believe that through a combination of strong management and our credible strategy executed well, we can ensure the future success of Metro Bank, allowing us to provide a force for good in U.K. banking. On behalf of the Board, I would like to recognize and thank our colleagues across the bank for supporting each other and delivering for our communities and our customers where they needed us most. I've had the opportunity to meet many colleagues from across the business, mostly virtually, and I have been struck by their commitment to Metro Bank and the way they have adapted to support customers through the pandemic and continue to deliver exceptional customer service, with the Competition and Markets Authority confirming once again, for the fifth time in a row, that we are #1 for store service and #1 for overall service on the High Streets. Looking ahead, my overarching priority as well as that of the wider Board is to ensure the bank remains well capitalized and returns to sustainable profitability in the medium term as we deliver on our ambition to become the U.K.'s best community bank. Thank you. And now I'll go through the formal business of the meeting. In physical attendance at this meeting are myself, David Arden and Melissa Conway. David and I are shareholders of Metro Bank PLC, and as such, the quorum requirements for the meeting are satisfied, and I now declare the meeting open. The Notice of Meeting has been sent out to the shareholders and made available on our website. That notice, including the full text of the resolutions, shall be taken as read. Resolutions 1 to 20 inclusive are proposed as ordinary resolutions, meaning that for each of these resolutions to be passed, more than half of the votes cast must be in favor. Resolutions 21 to 23 inclusive are proposed as special resolutions, meaning that for each of those resolutions to be passed, at least 3/4 of the votes cast must be in favor. As stated in the Notice of Meeting, voting on the resolutions shall be conducted by a poll. As Chairman of the meeting, I will vote on the poll as directed by the large number of shareholders that have submitted valid proxy cards prior to the meeting. The final results of the poll for each resolution, once scrutinized by our registrar, Equiniti, will be published through a regulatory information service and published on the company's website as soon as practicable. Thank you all for dialing in today by phone, and I declare the formal part of the meeting closed. We will now move on to our shareholder question-and-answer.

In the Notice of Meeting, we offered shareholders the opportunity to e-mail questions to the company in advance of the AGM. We have some questions from verified shareholders, and I will now read them along with the company's corresponding answers. So let me turn to the first question. I have been a loyal private investor for several years and firmly believe that the Board are doing everything they can to preserve shareholder value. Can the Board reassure me that any capital raised to bolster the balance sheet would not entail dilution to shareholders and look instead at the debt market and selling of assets? Well, firstly, thank you for the question and for your continued support. Last year, we presented a new strategy focused on returning the bank's profitability, which is key to building up our capital position. Understandably, the pandemic has made this more difficult. However, as Daniel Frumkin explained at our results presentation in February, there remains a path back to profitability and a path to achieving a reasonable return on tangible equity over a reasonable time horizon. Clearly, there is a degree of uncertainty over the next 6 to 12 months, in part dependent on how the macro economy evolves and also any changes to the outlook for base rates. Furthermore, in December, through the disposal of the GBP 3.1 billion mortgage portfolio to NatWest, we demonstrated that we are prepared to take action to create our capital headroom where necessary. I hope that answers that particular question. Can I move on to the second question? Can I also ask the Board if they would consider a joint venture similar to that of the pub group, Marston and Carlsberg, whereby a significant cash injection and headroom would be welcome with a sub-33% stake of the company buying a third-party? While we continue to be open to transactions, both acquisitions and disposals that are right for our stakeholders, we've demonstrated over the last 12 months with the RateSetter transaction and the mortgage book disposal that we can move quickly in order to accelerate our strategy. And I can assure you that we will continue to consider any opportunities that are presented to us. If the right transaction comes along and will create value for our shareholders, the Board will absolutely consider it. Moving on to our third question. What do the directors propose to do to increase the ever-falling share price? Will the directors consider a share buyback scheme to assist and improve the current disastrous share price? A relatively low investment at the current share price would have a high percentage increase in the share price. It would also further boost exposure and attract other investors. Well, firstly, can I just reiterate my previous answers. We regularly consider a broad range of options to consider shareholder value, and we've demonstrated over the past year that we are prepared to take decisive action where we identify the right opportunities. And while a buyback may support our share price for a limited period of time, we believe that we can better enhance shareholder returns by utilizing our balance sheet to deliver on our strategy. I would also emphasize that capital is currently a constraint for the bank. Buying back shares would reduce our capital headroom, thereby limiting our options, for example, by constraining our ability to rebalance towards higher-margin lending, which is a key driver for our return to profitability. Therefore, I would suggest that the share buyback is unlikely to be considered by the Board in the near future. Moving on to the next question. Back in October 2019, planning permission was granted for a new store in Chester. And it seems that this is not now going ahead. Please, can you say why as Chester is an affluent area of the country and, by not proceeding, the bank is missing large opportunities? It is also a large waste of funds by the bank for drawings, plans and fees. It makes sense to open this store before starting the process again in other areas. Well, thank you very much indeed for this question. And it is correct that we are not planning to open a new store in Chester in the near term, although we will be opening 2 stores later this year in Bradford and Leicester. And we are absolutely committed to our multichannel model. And our stores are integral to our focus on delivering great customer service. However, as we have already explained when we set out on our transformation strategy, capital is a precious resource. And we are highly focused on using it to deliver on our strategy and growing the bank profitably. We are going to reconsider the future of the store estate in 2022 and 2023 with future store openings coming thereafter. We have a really good foundation to build upon our existing store estate by helping to meet more customer needs through the products we offer and by building out the channels that we have. So we are going to leverage up what we have first before we look to grow the store network further. The next question, is the bank going to pursue a current account with added benefits such as travel insurance? If so, please look at the Lloyds model costing GBP 21 per month. It offers travel insurance up to the age of 80. They are the only bank offering this age bracket, and they can't sell enough of them. It has also AA cover, credit interest tiered and card loss cover. Well, thank you again for this question. And we always want to offer great value to our bank account customers and appreciate there are ways that we can enhance our offering further. We are always investigating new ideas to improve our products and services, and we'll be sure to keep customers updated on any future product developments in this regard. Thank you for this suggestion, and I'll be passing it on to our team internally so they take a look at and to see if there's anything that we can offer. And the very last question, reviews on Trustpilot appear to be divided between excellent reviews from friends, colleagues and disastrously bad reviews from members of the public. How can the bank reassure shareholders that the serious breakdown in standards and ethics suggested by the reviews is being addressed? Well, thank you very much for this. Trustpilot is an independent review site, and it is inevitable that there will be a range of views from different stakeholders. While we take these reviews very seriously, they do not appear to reflect the results of surveys of active customers and independent customer surveys. And for example, as I've already mentioned this afternoon, in February this year, Metro Bank was rated the #1 High Street bank for service and #1 for store service for the fifth time running by the CMA. And customer feedback is obviously very and really important to us. And we take complaints very seriously, using those as an opportunity to learn what works and what doesn't. So we would encourage dissatisfied customers to get in touch with us via our official complaints process. Ladies and gentlemen, that concludes the Q&A session, and we thank you again for joining us today. I will now hand back to the operator to close the audiocast.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.