A WhatsApp Rumor Challenges a Challenger Bank

https://bankinnovation.net/2019/05/a-whatsapp-rumor-challenges-a-challenger-bank/
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It was only a matter of time before confidence in the financial system would be tested by false information on social media. Britain may be getting a glimpse of what could spark the next run on a bank.

A dozen years after client withdrawals brought Northern Rock to its knees, photos of customers — admittedly tens, not thousands — queuing to get their savings out of Metro Bank Plc over the weekend should worry regulators. A flurry of unsubstantiated postings on Facebook Inc.’s WhatsApp alleged an imminent failure of the bank that grabbed the attention of the media and sent shares to a new low. Metro Bank says there is no truth to the rumors and customers have no reason to be concerned.

Reams of post-crisis rules to bolster lenders’ finances and protect deposits were designed to avert these very scenes. That Metro Bank is still reassuring customers that the bank is profitable and sound more than two days after the initial unsubstantiated rumors is a sign of the battle it is fighting.

It’s also a sign of how profoundly Metro’s image has changed. The first new lender to open outlets in Britain in a century, it was until very recently a darling of both stock market investors and customers.

Founded by controversial U.S. entrepreneur Vernon Hill, the nine-year old lender has seen its balance sheet more than quintuple in four years to 22.2 billion pounds ($29 billion), and its valuation command a steep premium to the bigger U.K. lenders. Though the bank is anything but systemic, its brashly decorated branches in busy shopping streets make it far more visible than other digital banking startups.

An accounting blunder revealed in January and uncertainty over how much additional capital the bank might need had sent the shares into a tailspin in recent months. From a 4,040-pence-high in March 2018, the shares more than halved last year and closed down another 11% at 475 pence on Monday. They were up 1.4 percent early Tuesday. It’s still not entirely clear how the accounting mistake came about.

In the era of 280-character soundbites and social-media chat groups, perhaps it’s little surprise that any rumor, no matter how spurious, would quickly spread. Starting Saturday, a WhatsApp chat group linked to an ethnic community in west London advised customers to withdraw funds and empty their safety-deposit boxes. Metro Bank’s efforts to allay concerns that the company is solid and that deposit box contents are beyond their reach has not quelled customer queries.

Though it’s unclear what real long-term damage, if any, the social-media falsehoods have wrought on the U.K. lender, the apparent panic is making its difficult situation worse. On Saturday it was compelled to issue a press release reiterating that plans to sell 350 million pounds of shares to bolster the balance sheet are on track, even though the money should be in the bag given that three securities firms have underwritten them.

Still, the next few days could be critical. The company said on May 1 that some large corporate customers had already started pulling deposits in the aftermath of the accounting issue. By early afternoon on Monday, shares were falling further, analysts were commenting on the “urgency” of the stock sale and questioning depositors’ loyalty.

We may not find out the actual extent of customer withdrawals until the company reports quarterly results. It is unwise to make any assumptions now — you can’t see what people in the branches were taking out, nor what they were transferring online. Though regulators have forced lenders to hold more capital and have introduced deposit insurance, the spotlight on Metro Bank is an unwelcome signal that confidence in banks is far from certain.

https://bankinnovation.net/2019/05/a-whatsapp-rumor-challenges-a-challenger-bank/